Baroness Prosser

Margaret Theresa Prosser, OBE, having been created Baroness Prosser, of Battersea in the London Borough of Wandsworth, for life—Was, in her robes, introduced between the Lord Lea of Crondall and the Baroness Gibson of Market Rasen.

Lord Maxton

John Alston Maxton, Esquire, having been created Baron Maxton, of Blackwaterfoot in Ayrshire and Arran, for life—Was, in his robes, introduced between the Baroness Ramsay of Cartvale and the Lord Clark of Windermere, and made the solemn affirmation.

Home-Made Produce

Baroness Gardner of Parkes: asked Her Majesty's Government:
	Whether any restrictions or conditions apply to the sale of home-made cakes, jams and similar products at local events, such as church fetes.

Baroness Andrews: My Lords, the sale of such foods in the way described is not restricted, although the Food Safety Act 1990, which exists to protect public health, requires that they should not be unfit or unsafe for human consumption.

Baroness Gardner of Parkes: My Lords, I am delighted by that Answer. I have not heard an Answer that has pleased me so much, as the continuing tradition of home-made cakes is something that I want to see. Does the Minister believe that there is a certain merit in a purely voluntary labelling of cakes? I cite my recent visit to Australia. Often the vendor is not the person who made the cake. In Australia, people may say whether butter or margarine has been used, although they do not have to do so—and, in particular, whether the cake contains any nuts. Does the Minister believe that a voluntary scheme of that type might be useful in this country?

Baroness Andrews: My Lords, I am delighted that the noble Baroness is so pleased with the Answer, and I am entirely in agreement with her on the merits of home-made cakes. I have experience of going to fetes over the years. One knows a lot about the cakes and their makers—the Women's Institute is particularly good in that regard—although we have not yet got to the situation in Australia. However, the Food Safety Act, which governs the general provision, means that the descriptions should never be misleading. One should never label something as having been made with butter when it was made with margarine, for example.
	In terms of nuts, we are extending labelling on pre-packed foods, so that from next January we will have labels for allergens. In fact, there is some voluntary labelling already, so we are making good progress.

Baroness Sharples: My Lords, 22 years ago, I introduced a brief Bill into your Lordships' House about the Women's Institute and the fact that its kitchens were at that time being inspected. I gather that they are no longer inspected—I presume that that remains the case.

Baroness Andrews: My Lords, the noble Baroness has had a very long and distinguished history in terms of jam yesterday—and, I sincerely hope, jam tomorrow as well.

Noble Lords: Oh!

Baroness Andrews: My Lords, I had to say that before somebody else did.
	Yes, I can assure the noble Baroness that those regulations have stood the test of time and that nothing has changed as regards the kitchens of the Women's Institute. They are still exempt from the key regulations.

Lord Addington: My Lords, effectively, is the Minister reassuring us that unless jams and/or preserves start killing people in large quantities, we shall not have any more restrictions, and that that is the position for the foreseeable future?

Baroness Andrews: My Lords, indeed, that is the position. Jam is not normally lethal, and our regulations are quite appropriate. What the Government aim to do with their food safety legislation is just that—ensure that public health is protected, but that the burdens on producers are not onerous or over-bureaucratic.

Baroness Trumpington: My Lords, nuts.

Noble Lords: Oh!

Baroness Trumpington: My Lords, when I was buying things from the Women's Institute many years ago, the subject of nuts being dangerous never arose. Has there been an increase in allergies to foods containing nuts?

Baroness Andrews: My Lords, I am no expert on the incidence of allergies. However, it is my impression that we have become much more aware of allergies, and they do indeed seem to be multiplying. Nut allergies are very serious for some people, and parents are very alert to what their children are eating, especially in terms of nuts. At the moment, the Food Standards Agency is conducting a consultation with stakeholders—as we call them—as to whether we should extend the requirement for allergen labelling to non-pre-packed food to ensure that there is an even greater degree of safety.

Lord Davies of Coity: My Lords, I wonder whether my noble friend is aware that my youngest grand-daughter is five years of age tomorrow. My wife has been spending all morning making a considerable number of cakes for the party. Does the Minister feel that there is any danger in that?

Baroness Andrews: My Lords, I am sure that every grandparent in the House will rejoice at the news that we have just heard. Home-made cakes are by and large extremely safe, although kitchens can be dangerous and one has to watch for cross-contamination. I am absolutely certain that the cakes that will be served tomorrow will be as safe as they can possibly be.

Lord Livsey of Talgarth: My Lords, I am the son of what used to be called a domestic science teacher who trained young people to cook. There is a decline in the number of home-made cakes at these events and it is necessary that they be healthy and the people well trained. Why have the Government not made enough effort to put domestic science on to the national curriculum to ensure that in future there will be a supply of healthy cakes to eat?

Baroness Andrews: My Lords, I can assure the noble Lord that food technology taught at key stage 3 includes a range of simple cooking. He is right that we would all like to see young people cooking more. One of the elements of the Food in Schools programme that is now in place is to develop cookery clubs and to encourage young people to explore and enjoy cooking.

Earl Ferrers: My Lords, does the Minister agree that it is slightly pointless putting on a jar a list of what it contains when one cannot get into the jar? Does she agree that many jars are now impossible even for tough men to get into? Little old ladies must find it very difficult.

Baroness Andrews: My Lords, I am told by colleagues that children can open any jar. But there is a serious point here because many people who have slight disabilities in their hands need extra help. Such help is available. Another issue is that of understanding the list of contents when one has got into the jar because the labelling is illegible.

Lord Skelmersdale: My Lords, there have been two recent cases where county councils have taken steps to ban home-made cakes from summer fêtes and school assemblies. Will the Minister decry with me the statement by a spokesman for Wiltshire County Council that schools should avoid selling home-made products as they cannot be completely sure about the conditions in which the food items were prepared or stored?

Baroness Andrews: My Lords, the county council in question did not ban cakes. What actually happened was that the school sought the advice of the county council and was advised that some products were riskier than others. These products included cream in cakes. That is proper and proportionate advice supported by the Food Standards Agency. Every school in the country is free to use its discretion about how it follows that advice.

HIV/AIDS

Viscount Craigavon: asked Her Majesty's Government:
	What contribution the position paper by the Department for International Development on sexual and reproductive health and rights will make in combating HIV/AIDS.

Baroness Amos: My Lords, the Department for International Development position paper provides the basis for continuing action and investment to promote reproductive health and rights. It highlights the crucial links between sexual and reproductive health and rights and efforts to prevent HIV and AIDS. This will also be reflected in the forthcoming HIV and AIDS strategy.

Viscount Craigavon: My Lords, I am grateful for that helpful Answer. Does the Minister accept that when her colleague the Secretary of State launched the document yesterday the language he used, and the language of the document, was extremely welcome and showed DfID's renewed emphasis on this subject? Does she accept that if most of the millennium development goals are to be reached we need a significant input from reproductive health? Does she agree that, where appropriate, reproductive health services should be integrated with HIV/AIDS services?

Baroness Amos: My Lords, the noble Viscount is quite right. My right honourable friend the Secretary of State for International Development talked about the importance of the link and made the point that by taking action on sexual and reproductive health we know that we are also helping to tackle HIV/AIDS. This is the continuing emphasis of the work of the department.
	With respect to the issue of the millennium development goals, sexual and reproductive health contributes to progress on those goals relating to maternal mortality, child mortality, HIV/AIDS, gender equality and poverty reduction.

Baroness Whitaker: My Lords, does my noble friend agree that one of the serious obstacles to achieving sexual and reproductive health, and even more to combating AIDS, is the lack of ability in women and girls to insist on safe sex or even, if they want, no sex? How can DfID help their societies to foster that power?

Baroness Amos: My Lords, my noble friend is quite right. We need to ensure that women and girls are informed. We also need to ensure that the governments in those countries take this issue seriously and that there is leadership from the top. Research by the World Health Organization shows the importance of informing girls and women. Sex education often delays the age at which young people start having sex and increases safer sexual practices.

Lord Fowler: My Lords, I strongly welcome the efforts that the Government are making on HIV/AIDS, particularly in Africa. Does the Minister recognise that to have full authority to lead they need to be doing their utmost at home as well? Is she aware that at the moment many health workers in this country feel that the efforts being made in the UK to combat HIV/AIDS and sexual health problems generally are seriously inadequate?

Baroness Amos: My Lords, I agree with the noble Lord, Lord Fowler, that we need to take action on the domestic agenda as well. We have seen that the number of individuals infected through heterosexual sex has been increasing steadily although gay and bisexual men remain the group most at risk. The noble Lord will know that since 1996–97 the Department of Health has funded the Terence Higgins Trust for national HIV health promotion for gay men delivered through the community. We are also looking at the implications for those groups coming into the country. The noble Lord will know that the size of the group of those people coming into the country already infected with HIV/AIDS is larger than that of those infected here in the UK. We need to look at both, which is precisely what the Government are doing.

Lord Chan: My Lords, does the Minister agree that the group most affected by lack of reproductive health services is newborn babies? Three million newborn babies die every year. Will the Minister inform us of what is being done to improve clinical services in developing countries for mothers in childbirth and newborn babies in order for them to have better survival? Better survival of babies would mean that parents are more likely to reduce the size of their families.

Baroness Amos: My Lords, the noble Lord, Lord Chan, raises a very important issue. Of course we are looking at the issue of mother-to-child transmission. However, we also need to look at building the health systems and structures in the developing countries themselves. There has been a great deal of focus on prevention and treatment. However, in addition to that, if we do not have adequate health structures in the developing countries to enable treatment to work or our prevention strategies to be understood, we will face a much greater problem.

Baroness Northover: My Lords, will the noble Baroness please congratulate the authors of this excellent report on, among other issues, tackling head on the problem of unsafe abortions? I hope that the Government will be as brave in international fora on that. Following the question of the noble Baroness, Lady Whitaker, I wonder whether DfID is going to produce a paper on how best to take forward the promotion of the rights of women and girls. If we are to combat high maternal mortality and the higher incidence of AIDS among women, surely that is the key.

Baroness Amos: My Lords, the noble Baroness may be aware that this report complements other reports. We will be doing another report on HIV/AIDS which will come out in July, and we have already done reports on health and on maternal mortality. So the papers will complement each other. I thank the noble Baroness for the points that she makes on the link that the report makes to unsafe abortions. The Government are absolutely clear: we do not want to see women having to go down that road. But where women do opt for abortion, they need to be safe.

Baroness Masham of Ilton: My Lords, what can be done about the traditional medicine men's advice to men with HIV that they should have intercourse with a young virgin in order to cure themselves?

Baroness Amos: My Lords, we have to ensure that there is proper information sharing. We need to look at countries such as Uganda where they have managed to reduce the prevalence by leadership not only from the top, from the president, but throughout communities, where people do not feel afraid to talk about these issues. That is the only way in which we can deal with the myths and stereotypes that abound around HIV/AIDS.

Baroness Rawlings: My Lords, following the remarks of the noble Baroness, Lady Northover, on the very good report which the Secretary of State has produced, and which I support, the current number of AIDS orphans in the world is 14 million and growing. Future projections claim that this number could reach 40 million. What resources are Her Majesty's Government setting aside to help to provide these orphans with the resources and support that they will need?

Baroness Amos: My Lords, the noble Baroness may be aware that we have been incorporating our concerns about orphans and vulnerable children into our country programmes. In Malawi, for example, we have been working to ensure that social protection measures for families affected by HIV/AIDS are integrated into the poverty reduction strategy. We will address this issue also in the forthcoming AIDS strategy.

Baroness Lockwood: My Lords—

Lord Patel: My Lords—

Noble Lords: This side!

Lord Grocott: My Lords, I think the simplest way to resolve this is to say, "We are now in the 18th minute. Next Question!".

The Euro

Lord Hunt of Chesterton: asked Her Majesty's Government:
	Whether it is their policy to encourage the use of the euro; and, if so, when euros will be accepted by government offices and at the Palace of Westminster.

Lord McIntosh of Haringey: My Lords, it is a commercial decision for UK organisations to determine whether they wish to accept the euro or any other foreign currency. The Inland Revenue and Customs and Excise have since 1999 accepted euros in payment of tax, converting the payments to sterling at no charge to the payee. The Government have no control over financial transactions in the Palace of Westminster.

Lord Hunt of Chesterton: My Lords, I am grateful for the Minister's positive reply. As the Government's overall philosophy is now to enhance choice when that is in the general interest, should they not be applying that principle by providing the option to British citizens and foreign visitors to use the euro in the UK for public and private business? Do the Government agree that, once that becomes routine—including in the Palace of Westminster—there should soon be a smooth entry of the UK into the euro-zone, much as Ireland smoothly entered the euro-zone after its experiences of using two currencies, the punt and the pound, over many years? I declare an interest as a visiting professor in Delft, and sometimes I have some euros in my pocket.

Lord McIntosh of Haringey: Yes, of course, my Lords; encouragement is what we can provide and encourage is what we do—every six months, we publish a new report on euro preparations—but I do not think, as far as commercial organisations are concerned, that we ought to go further than encouragement. I am glad to be able to tell my noble friend that the position he described in Ireland is still the case, in the sense that about 30 per cent of trade in Newry in Northern Ireland, which is close to the border, is conducted in the euro. One city-centre cash machine has over 5,000 euro-note transactions a week.

Lord Lawson of Blaby: My Lords, is the Minister aware—there is no reason why he should be—that the man who runs the local furniture stall at the market in Vic-Fézensac, in Gascony, still insists on quoting his prices in francs? That aside, can he inform us when the Government's long awaited and indeed long overdue next assessment of whether the celebrated five tests have been met will be announced? We are all agog.

Lord McIntosh of Haringey: My Lords, my builder in France still quotes in old francs, which have been gone for 50 years. The second question of the noble Lord, Lord Lawson, is wide of the Question on the Order Paper.

Lord Taverne: My Lords, the use of the euro by members of the public will largely be decided by the market. But the euro is becoming an increasingly important reserve currency. What is the Treasury's policy towards the relative holding of dollars and euros?

Lord McIntosh of Haringey: My Lords, the Treasury does not have policies for other institutions, individuals or commercial organisations on which currency they should hold their reserves in.

Lord Harrison: My Lords, will my noble friend encourage major visitor attractions to use the euro thereby providing a service to foreign visitors as well as making more money because, as I understood the position when I last asked, the National Trust and the British Museum, both of which, I believe, are supported by government money, were failing to do so?

Lord McIntosh of Haringey: My Lords, the National Trust is not supported by government funds. I take the point that tourist attractions should be encouraged to take euros. I have too short a list of those who do. It comprises: Historic Scotland, CADW (the Welsh historic environment agency), and Dover District Council, which, I suppose, is closest to the euro-zone. Dover District Council accepts euros in its museum, tourist information centre and area offices. As I say, it is too short a list.

Baroness Noakes: My Lords, does the Minister recall that in 1998 the Economic Secretary to the Treasury predicted that once people went on holiday in the euro-zone they would come home and demand to know what the Government were doing to prepare for euro entry? Does he accept that that was one prediction which the Government got 100 per cent wrong?

Lord McIntosh of Haringey: No, my Lords. People demand to use the euro and many organisations do so, not particularly, I have to say, government organisations, but you can certainly shop with the euro in Marks & Spencer. The telephone box outside my department in Cockspur Street takes euros.

Lord Peston: My Lords—

Lord Thomas of Gresford: My Lords—

Baroness Amos: My Lords, perhaps we can hear from the Liberal Democrat Benches and then these Benches.

Lord Thomas of Gresford: My Lords, will the Minister congratulate the traders and shopkeepers of the town of Llangollen who take euros during the international eisteddfod, which is taking place this week?

Lord McIntosh of Haringey: My Lords, I am delighted to hear it. The same is true in England at Cheltenham during Gold Cup week when bookies and businesses take euros but they do not necessarily give euros back.

Lord Peston: My Lords, as someone who would certainly have joined the European monetary system much earlier and would sign on the dotted line today, I ask whether there is not one problem. No firm in its right mind would reject ready money, although our country seems to have quite a few firms that are not in their right mind. Is not the problem the behaviour of our banks who still charge excessive sums for converting euros into sterling when the shopkeeper brings them in? That is something on which the Government could at least say a word or two in public, is it not?

Lord McIntosh of Haringey: My Lords, it is not just a case of excessive sums but also, in my view, excessive delays. The Government and the Bank of England have expressed their disapproval of that behaviour on many occasions.

Lord Renton: My Lords, will the Government bear in mind that if we joined the euro our Government would no longer be free to cure inflation or deflation in our own country simply by adjusting the value of our own currency, as has been done a number of times—three or four times—in the past 70 years?

Lord McIntosh of Haringey: My Lords, I am sorely tempted to answer that question but it is wide of the Question on the Order Paper.

Lord Carter: My Lords, does my noble friend agree that for all the countries in the euro-zone the euro is a single currency, but that for all the countries outside the euro-zone, each of which has its own exchange rate against the euro, it is a common currency? Does he also agree that so far as the UK is concerned the euro has all the flexibility of a common currency but not the rigidity of a single currency? Have we got the best of both worlds?

Lord McIntosh of Haringey: My Lords, I am defeated by my noble friend's semantics. I shall have to think about the question that he raises.

Scottish Regiments

Lord Monro of Langholm: asked Her Majesty's Government:
	Whether they intend to reduce the number of Scottish regiments.

Lord Bach: My Lords, the defence White Paper published last December established the policy context for shaping the future structure of our Armed Forces. For the Army, it outlined the vision of a more balanced force that is flexible, rapidly deployable and sustainable for the variety of missions that we envisage it undertaking.
	Against this policy guidance, we have been working through the detailed implications for the Army's force structure. We anticipate being in a position to make announcements about the conclusions of this work shortly.

Lord Monro of Langholm: My Lords, in thanking the Minister for his reply, is he aware of the fury that would be aroused if the UK regiments were disbanded? Is he also aware that for our overstretched soldiers serving abroad and doing wonderfully well it would be a disgraceful reward to be disbanded when they come home? Finally, is he aware that most Scottish regiments, particularly the Highlanders, will be up to strength in the autumn despite the cancellation of recruiting by the Government?

Lord Bach: My Lords, there has been no cancellation of recruiting by the Government. There is no ban, no freeze and no cap on Army recruitment. The Army has an enlistment figure of 11,318 for the current financial year and since 1 April more than 1,500 recruits have enlisted. Of course, I know the strong feelings that are held on this matter. As I say, I am not in a position to make any announcement today. I can say, though, that the history of our Armed Forces is, of course, one of evolution. Our priority has to be to ensure continued and future operational success by responding to the changed strategic environment. Therefore, we have to modify and adapt our Armed Forces to be relevant, flexible and usable in this changed environment.

Lord Redesdale: My Lords, will the Minister confirm or deny that the Army Board ordered Lieutenant General Sir Alistair Irwin to bring down the numbers in the Army to 102,000 men to meet financial constraints because the Army cannot afford any more than 102,000 men even though the nominal figure at the moment is 107,000 men—5,000 undermanned? Will he confirm that that constraint rather than any other factor is preventing the Scottish regiments recruiting and coming up to strength?

Lord Bach: My Lords, the Liberal Democrats have it completely wrong. As a result of the Army's recruiting and retention success in recent years it has been necessary to take steps to manage strength within agreed targets and agreed budgets, as any large organisation would do. We have to do that in order to maintain balance in Army manpower numbers. As I said, the Army is progressing well towards its enlistment target of 11,318 for this year, and since April more than 1,500 have joined up. Recruitment has never been better.

Lord Bramall: My Lords, does the Minister not at least agree that with the Army so manifestly overstretched and the future so utterly unpredictable it would be absolute madness and highly irresponsible to reduce the number of infantrymen and units available for sustained operational deployment now and in the future?

Lord Bach: My Lords, I take great note of what the noble and gallant Lord says but I have to say to him that experience demonstrates that our current light forces cannot provide the combat power required by some of the more demanding types of operation where rapid deployment is needed. At the same time our world-class heavy forces are comparatively slow to deploy and demanding to sustain. That means we have to shift from the current mix of light and heavy forces to a more graduated and balanced structure of light, medium and heavy forces together with a greater emphasis on enabling capabilities such as engineers, logistics and intelligence. We have to evolve.

Lord Garden: My Lords, does the Minister agree that conflict prevention and post-conflict reconstruction stabilisation operations are the way that we are going forward—we are going to have more of them—and that the British forces are unparalleled in their ability to carry them out? If the noble Lord agrees with that, does he not see that there is a need for numbers as well as equipment, and will he assure us that he will try to get the establishment of the Army up to where it should be, and should have been for some years?

Lord Bach: My Lords, I largely agree with what the noble Lord says. That is one of the prime roles of the British Armed Forces at the present time and will continue to be so. As I said, Army recruitment has never been higher.

Lord Campbell of Croy: My Lords, does the noble Lord recall the successful Save the Argylls Campaign in the 1960s and 1970s in which I admit to having played a part? That campaign assisted other regiments to survive or merge which were threatened at the time. Would it not be unwise to repeat such threats?

Lord Bach: My Lords, I remember the campaign and I know the strength of feeling that there is now. The noble Lord, Lord Monro, expressed that very clearly. However, I shall quote the words of the Chief of Defence Staff to the House of Commons Defence Committee in April this year. He said:
	"What I think both of us, and I think most of our senior generals . . . believe is that regimental fighting spirit is what makes the British Army what it is. Now the way by which you achieve that has many different courses of action which you could follow. It does not have . . . to be exactly as it is today for the future, nor is it today what it was 15 years ago. You have to modernise the regimental structure that we have to make sure that it is relevant to what we are doing, that it meets what defence policy requires of us and it does provide the regimental fighting spirit. I see no difficulty or tensions between those things".
	I commend what he said to the House.

Baroness Park of Monmouth: My Lords, where does provision come from for necessary home defence—but hardly normal defence—such as covering for the firemen? Will there be a special unit for that, or will we have to redeploy people who are already fully committed in other ways to do that from time to time, whenever the fancy takes the firemen?

Lord Bach: My Lords, I hope very much that there will be no need for the Armed Forces to come again to the aid of the country in the way in which they had to last year—but if they have to, they will.

Burma: ASEAN Communiqué

Lord Wallace of Saltaire: asked Her Majesty's Government:
	Whether they consider the statements by the Association of Southeast Asian Nations' foreign ministers on developments in Burma, made during preparations for the Asia-Europe summit meeting in September, to be sufficiently robust.

Baroness Symons of Vernham Dean: My Lords, the communiqué issued after the ASEAN ministerial meeting in Jakarta underlined the need for all strata of Burmese society to be involved in the continuing national convention, and encouraged all parties in Burma to continue their efforts to effect a smooth transition to democracy. It also emphasised the continuing relevance of last year's ASEAN communiqué, which called for the release of Aung San Suu Kyi. Those are all essential steps for the progress to democracy in Burma that the EU supports.

Lord Wallace of Saltaire: My Lords, I thank the Minister for that reply. Does she accept that, at a point where relations between the United States and its major allies are going through a very difficult patch, it is important that there be an Asia-Europe summit this year? Could she specifically rebut what I have heard from officials in some continental foreign ministries—that the British are not enormously bothered about whether ASEAN takes place? Does she nevertheless recognise that the participation of Burma in the ASEAN summit raises real difficulties for us all, and that we have to press the ASEAN governments to increase the pressure on Burma to introduce conditions under which it will move towards being a less authoritarian society?

Baroness Symons of Vernham Dean: My Lords, I appreciate the importance of the ASEAN summit, at which the United Kingdom will be represented by my right honourable friends the Deputy Prime Minister and the Foreign Secretary. However, the noble Lord has put his finger on the problem that the summit will have to face, which is whether the ASEAN countries will stick with all three of their candidates to join ASEAN, including Burma. They have put the point to us that if that is not acceptable to the EU, it is not acceptable to them to accept all 10 new members of the European Union. That is the dilemma that we face. We shall of course continue to press the ASEAN countries on the points about democracy, Aung San Suu Kyi, and full participation in the convention.

Lord Faulkner of Worcester: My Lords, is my noble friend aware that the communiqué that foreign ministers published at the end of the ASEAN conference last week contained a declaration which said that they were in favour of the elimination of violence against women, and in favour of women having an important and highly respected place in south-east Asian societies? Does she not find it extraordinary that the communiqué failed to make any reference whatever to the continued detention of Aung San Suu Kyi or the involvement of the National League for Democracy in the future of Burma's democracy?

Baroness Symons of Vernham Dean: My Lords, in my Answer I was perhaps very diplomatic, but I think that the paragraphs that deal with Burma in the statement are not written in the forthright terms that British Ministers use in relation to Burma. However, the crucial point is that that paragraph is there. Do not let us forget that, only last year, that paragraph was inserted for the first time in the communiqué. I welcome the fact that there is such a paragraph again this year, but we would have expressed that paragraph more robustly.

Lord Avebury: My Lords, does the noble Baroness agree with the reply that was given by Mr Xavier Solana, the EU high representative for foreign and security policy, to a question about the ASEAN summit, which was that to have the summit we must have some movement? Would she therefore not think it necessary that we should spell out exactly what movement is required for the summit to take place? For instance, does it include the release of Aung San Suu Kyi and the revision of the constitutional process so as to allow all political parties and ethnic groups to participate?

Baroness Symons of Vernham Dean: My Lords, the question is not about those specific points in relation to holding the summit, but about those points in relation to Burma being part of the ASEAN delegation to the summit. We have been very clear in setting out three developments that we want: first, the permanent release of Aung San Suu Kyi; secondly, a genuinely open and representative national convention; and thirdly, the NLD and other opposition parties being allowed to participate in it. If those conditions are fulfilled, there is no problem about Burma; if they are not, I suggest that there will be a great deal of hard arguing about it.

Lord Howell of Guildford: My Lords, is the EU official pronouncement, which is posted on the Internet, correct that if Burma attends the forthcoming meeting the EU will not do so? Is it also correct that Cambodia has said that if Burma does not attend the meeting, it and Laos, which are attending for the first time, will not attend? Is there not a danger that, if those positions are taken up, we will end up breaking off the dialogue between Europe and the ASEAN countries? As they are the growth countries in the global economic system, it would not be a very brilliant idea to do that.

Baroness Symons of Vernham Dean: Indeed, my Lords, it would not be a very brilliant idea, which is why I tried to couch my answers in fairly conditional terms about what is likely to happen. That is why I said to the noble Lord, Lord Wallace of Saltaire, that there was a real dilemma. If we are being threatened and have to give way on the questions of the release of Aung San Suu Kyi and of democratic representation in Burma and allow Burma to join anyway, there would be a great deal of unrest and unhappiness about our taking such a position. However, if we jeopardise the whole of the summit process—the noble Lord, Lord Wallace of Saltaire, rightly reminded us that it was enormously important in today's highly volatile international situation—that is a difficulty, too. I suggest that we are patient, continue with what we have set our hand to do in arguing for Burma to fulfil those conditions, and do our best to argue for the best possible position before the summit.

Companies (Audit, Investigations and Community Enterprise) Bill [HL]

Report received.
	Clause 2 [Arrangements to which additional requirements for recognition relate]:

Lord Sainsbury of Turville: moved Amendment No. 1:
	Page 3, line 35, leave out "Part 4" and insert "Part 6"

Lord Sainsbury of Turville: My Lords, I hope that this group of amendments will not detain us long. Its purpose is to tidy up some drafting points and make a couple of changes that we agreed to consider in Committee.
	The amendment to Clause 2 corrects an inaccurate reference to the Financial Services and Markets Act 2000. The amendment to proposed new Section 389A(5) in Clause 8 fulfils our commitment to spell out more clearly to whom "the person concerned" is intended to refer. The amendment to Clause 11 tidies up a minor inconsistency by amending the reference to "statute", to be consistent with a reference to "statutory provision" at line 24 on page 14 of the Bill.
	During Committee stage we agreed to give further consideration to an amendment tabled to Clause 13 by the noble Lord, Lord Hodgson, to remove the Secretary of State's ability to make supplementary and incidental provisions in the order specifying a body to prepare reporting standards principally for the proposed operating and financial review. We have found no convincing examples of when such a power might be needed and have therefore brought forward an amendment to remove that provision.
	The amendment to Clause 41 is modelled on that tabled by the noble Lord, Lord Phillips, at Committee, which we agreed to consider. The amendment will ensure, in those cases where it is not already apparent, that the remedy the regulator is seeking when bringing legal proceedings on behalf of a community interest company is made clear.
	The amendment to Clause 57 also tidies up the drafting of the Bill. We have noticed that Clause 57 is slightly inconsistent with Clauses 58 and 59, which refer to "this Part" without adding "of this Act". Therefore we have made a small correction in this respect. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, as we begin the Report stage, I am tempted to burst into song, if that is not unparliamentary. The Minister might recall the song called "American Pie" by Don McLean, which begins:
	"A long, long time ago I can still remember how"
	it used to be.
	It is now six months minus one day since Second Reading and since that time much water has passed under many bridges, although the Government do not quite seem to have grasped the issue of limited liability. I see that it has been floated again in the Times today in an article by Patience Wheatcroft entitled, "If the auditor's cap fits . . . "—but in the end it never arrived. We welcome these amendments, particularly the two that we were keen to insert in Grand Committee, which made the words "those concerned" more explicit and removing surplus verbiage—supplementary and incidental words in the later clause. We are content with the amendments.

On Question, amendment agreed to.
	Clause 2 [Arrangements to which additional requirements relate]:

Lord Hodgson of Astley Abbotts: moved Amendment No. 2:
	Page 3, leave out lines 37 and 38.

Lord Hodgson of Astley Abbotts: My Lords, there has been some confusion over this amendment. With the leave of the House, I shall also speak to Amendment No. 3A, which has not been grouped. Both amendments deal with precisely the same issue. We grouped them in Committee and I am sorry that we have not managed to have them grouped together on this occasion.
	We are returning to these amendments to Clause 2 to seek further clarification over the definition of a phrase within the Bill. We believe that there is still a need for further clarification of the meaning of "public interest" cases under proposed new paragraph 19(2)(b) to Schedule 11 to the Companies Act 1989. There is a similar issue regarding new paragraph 20, which is concerned with independent monitoring and investigation. We sought to raise those issues in Committee and we wish to probe the meaning of the two adjectives in the proposed new paragraphs.
	The amendment seeks further explanation of the details of the definition of "major audit" in proposed new paragraph 19(2)(b) to Schedule 11 to the 1989 Act. It defines "major" as a,
	"company in whose financial condition there is a major public interest".
	Amendment No. 3A seeks further explanation of what "important" means in the context of the definition of "public interest cases" that are defined in proposed new paragraph 20(2) to the schedule.
	We are grateful to the Minister for explaining in Committee that the definition of "public interest cases" in proposed new paragraph 20 is relevant only to that new provision and not to proposed new paragraph 19. However, as that failed to define "major public interest", we are none the wiser about its meaning.
	We recognise that the Minister did try to explain that in Grand Committee, when he said:
	"We expect that public interest disciplinary cases would cover cases about the conduct or quality of audit work in respect of listed companies and other major companies. These are the most likely to raise important issues affecting the public interest".—[Official Report, 16/3/04; col. GC 29.]
	The words "important" and "major" appeared without further qualification or explanation. Furthermore, the explanation provokes more questions. As there has been time for reflection, I hope that the Minister, having consulted with his officials, can answer with greater precision. For example, who will decide if a particular case has significant "public interest"? How will that be done and how will the importance of the issues raised be measured? What right to appeal against any decision will there be?
	The Minister tried to answer some of those questions in Committee when he said that,
	"whether particular cases fall within the scope of the arrangements will be a matter for the arrangements to determine, having regard to all the circumstances".—[Official Report, 16/3/04; col. GC 39.]
	That hardly clarifies matters. What does that verbiage really mean? Will the Minister give a fuller explanation, or, better still, some examples of which companies will be considered to be of major public interest and what are considered to be important issues that affect the public interest? I beg to move.

Lord Sainsbury of Turville: My Lords, in bringing forward new requirements about audit monitoring in Clauses 1 and 2, our intention was that the independent arrangements should focus their attention on those audits where an audit failure would be likely to have the most significant adverse impact. As the review of the regulatory regime of the accountancy profession recognised, this is an important element in maintaining confidence in financial information and so supporting effective markets.
	I do not consider that the sole determinant of whether an audit is a "major audit" should be whether a company is listed. There are other companies which are not listed but whose importance is such that their audits must also be considered as major. I believe that it would be wrong to exclude companies with large-scale operations just because they are not listed. A company, although not listed, could be of significant public interest for a number of reasons—for example, the volume of its turnover or its impact in a particular area, such as charities or pension funds.
	The amendment would mean that the audit of, for example, Equitable Life could not be considered as major audit and, accordingly, would not be included in the minimum scope of audits covered by independent monitoring arrangements. I do not believe that that would be right.
	I should emphasise that the purpose of the new arrangements for independent monitoring is to support the credibility of the monitoring process by increasing its independence from the profession. The new requirements would not impose additional burdens on either companies or auditors. Therefore, I do not believe that it is appropriate to limit the minimum scope of the arrangements in the way proposed by the amendment.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the Minister, but we have not made much progress. We obtained one example from him, which was helpful, but we have probably obtained all of the juice out of this particular orange. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hodgson of Astley Abbotts: moved Amendment No. 3:
	Page 4, line 15, at end insert ", and
	( ) for ensuring that all defendants are properly represented"

Lord Hodgson of Astley Abbotts: My Lords, the amendment returns to a discussion concerning proposed new paragraph 20 of Schedule 11 to the 1989 Act (as set out in Clause 2) and the arrangements for independent investigation of public interest cases for disciplinary purposes. The amendment seeks to include the provision that all defendants should be properly represented. We believe, despite the Minister's arguments in Committee persuasive that this provision should be remedied.
	The Minister insisted that a disciplinary scheme for defendants already existed under the Accountancy Investigation and Discipline Board. But is it sensible to just assume that the AIDB disciplinary scheme will cover the costs of a defendant's legal representation? The AIDB is not a statutory body, so there is no statutory certainty that all defendants will be properly represented. This is not a matter on which the Government could fall back on the guarantees of the AIDB. It is commendable for the AIDB to provide a demonstrably fair, independent and expert system, but there is no legal certainty that it will be continued for as long as this Act remains in force.
	In Grand Committee the Minister said:
	"The requirement for open hearings is consistent with the requirement of Article 6(1) of ECHR, that a person is entitled to a 'fair and public hearing' in the determination of his or her 'civil rights and obligations'. I take on board the basic point of the amendment that there should be consideration that everyone is properly represented. I do not believe that such a provision needs to be put into the Bill as it has been taken account of already in the disciplinary scheme that I have mentioned".—[Official Report, 16/3/04; GC 34.]
	Apart from the last sentence, I am in complete agreement. Article 6 of the ECHR does, indeed, require the fair representation of a defendant in a public hearing, and that should be put into the Bill in any case. It may have been "taken account of" by the AIDB, but "taken account of" is not good enough.
	The Minister continued and said that the representation of all defendants is too "detailed" and is,
	"best left to the arrangements themselves rather than being prescribed in legislation".—[Official Report, 16/3/04; col. GC 33.]
	I am afraid that we disagree with that. Instead, we believe that representation of all defendants is a crucial issue. It should be made explicit in the Bill rather than devolved to a body that has no statutory value. I beg to move.

Lord Evans of Temple Guiting: My Lords, as we have heard, this amendment was previously debated in Grand Committee, when we clearly failed to convince the noble Lord, Lord Hodgson, that such a provision was not necessary. I now propose to try again.
	The person who exercises the recognition function will need to consider all aspects of disciplinary arrangements in order to come to a view on whether or not they are "appropriate" arrangements for the purposes of new paragraph 20.
	One issue that will have to be considered is the representation of defendants. It is of course entirely right that defendants should have the opportunity to be represented. As we said in Grand Committee, if the disciplinary arrangements did not make any provision in respect of representation and that caused procedural unfairness, it could call into question whether the disciplinary arrangements were "appropriate". Therefore, it would not be open to the disciplinary arrangements just to ignore this issue altogether.
	A number of the recognised supervisory bodies have already signed up to the disciplinary scheme of the Accountancy Investigation and Discipline Board of the FRC. The disciplinary scheme and supporting regulations, which are publicly available on the FRC's website, provide a framework for the operation of disciplinary hearings held under the scheme. The framework includes the right to representation throughout disciplinary hearings and prior investigations. The scheme also provides that a disciplinary tribunal can require the AIDB to pay a defendant's legal costs where he is unable to do so himself.
	In Grand Committee, the noble Lord, Lord Hodgson, expressed concern about the lack of statutory certainty that the AIDB's arrangements for carrying out cases would necessarily continue into the future. He has repeated that concern today. I note that any changes to the AIDB's scheme would also need to be agreed by the participating accountancy bodies—the AIDB could not make unilateral changes to the scheme.
	As I mentioned, the person exercising the recognition function will have to look at all relevant matters relating to the functioning of the disciplinary arrangements in deciding whether or not they are "appropriate". That will include matters such as the right to representation and the right of appeal. I consider it unlikely that the supervisory bodies would agree to any watering down of the AIDB's disciplinary scheme that would risk a decision that the scheme was no longer appropriate and that the supervisory bodies no longer fulfilled the statutory requirements for recognition. The same considerations would apply if the disciplinary arrangements under consideration were not those of the AIDB.
	Therefore, we consider that sufficient safeguards are already in place to ensure that supervisory bodies can satisfy the requirements for recognition only by participating in appropriate disciplinary arrangements. The question of the circumstances in which representation should be provided to defendants, along with the myriad of other details concerning the functioning of the arrangements, is best left to be determined under the disciplinary arrangements themselves, rather than being prescribed in legislation. I hope that the noble Lord, Lord Hodgson, will accept the explanation that I have given.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the noble Lord, Lord Evans, for his explanation, and I think that he does persuade me. If I heard aright, he said that Article 6(1) of the ECHR will be an implicit requirement for recognition, without which the disciplinary procedures will not meet the requirements for the recognition of the body concerned. If that is the case—I notice the noble Lord nodding—I am satisfied with that reply and am happy to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendment No. 3A not moved.]

Lord Evans of Temple Guiting: moved Amendment No. 4:
	Page 4, line 30, leave out from "body" to end of line 33 and insert—
	"(a) will have no involvement in the appointment or selection of any of the persons who are to be responsible for doing the thing or things in question, and
	(b) will not otherwise be involved in the doing of that thing or those things."

Lord Evans of Temple Guiting: My Lords, during Grand Committee a number of noble Lords stressed the importance of the regulator continuing to work in partnership with the accountancy profession in order to ensure effective and well informed regulation. I entirely agree. The partnership approach is a fundamental aspect of a regulatory regime that works well. That is why the Review of the Regulatory Regime of the Accountancy Profession recommended strengthening the independence of aspects of the regime and not tearing it up and starting with a different model.
	One concrete sign of this partnership approach is that the chairman of the Consultative Committee of Accountancy Bodies is a member of the Financial Reporting Council and sits on the board of directors, along with the president of the CBI, a senior member of the investment community and the independent chair and deputy chair. The purpose of the amendment is to ensure that the definition of "independence" at new paragraph 21 does not preclude this arrangement.
	The amendment makes clear that an audit supervisory body must not be involved in appointing the people who do the things mentioned at paragraphs 17(b), 18(b), 19(1)(b) or 20(1)(e) or in the actual doing of those things. In other words, the body must not be involved in appointing the people who determine technical standards or standards relating to professional integrity and independence, or who carry out monitoring and inspection of audits of listed or other major companies, or who carry out investigations, hold disciplinary hearings or take disciplinary decisions; nor must the body be involved in doing any of those things.
	The FRC and the board of directors have a role in setting the overall strategy of the FRC and in setting budgets and managing performance for the boards. That role is separate from the doing of the things that I described, and it is not intended that paragraph 21(2) should preclude the chairman of the CCAB from participating in that role. The amendment seeks to make that clear. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, we are grateful that the Government have taken on board the concerns expressed in Grand Committee and, indeed, that the noble Lord, Lord Evans, has emphasised the importance of a collaborative regime going forward. I hope that he will not think me unreasonable if I raise a slight reservation about subsection (b) of the amendment, which reads that the accountancy bodies,
	"will not otherwise be involved in the doing of that thing or those things".
	I believe that the intention here is to allow consultation between the bodies and the Audit Inspection Unit, while the bodies are restricted from any involvement in the carrying out of the RU's functions. But the fact that that consultation is permitted is not absolutely clear. I should be grateful if the Minister could confirm that the amendment permits consultation between the accountancy bodies and the RU.
	Can he also confirm that the restrictions on the involvement in the doing of that thing or those things should not prevent: first, the exchange of information and risk assessment from desktop monitoring; secondly, the provision of specialist expertise by QAD staff to assist the AIU in the course of AIU inspections; or, thirdly, liaison between the RU and the QAD in the preparation of their respective reports to the audit regulatory committee to ensure that the combined coverage is comprehensive and meets the committee's needs? If the amendment does, indeed, permit consultation, as we argued in Grand Committee, it would be entirely sensible and balanced. We should be grateful if the Minister could give that further explanation before we wave the matter goodbye.

Lord Evans of Temple Guiting: My Lords, I am sure that the noble Lord, Lord Hodgson, will be delighted to hear that the answer to every question that he asked is "yes".

On Question, amendment agreed to.
	Clause 8 [Auditors' rights to information]:

Lord Hodgson of Astley Abbotts: moved Amendment No. 5:
	Page 10, line 22, at end insert "who is working in Great Britain"

Lord Hodgson of Astley Abbotts: My Lords, in Committee we proposed an amendment that would remove from the Bill the want of symmetry in the Bill between overseas and UK subsidiaries of UK parent companies—that is, overseas incorporated and UK incorporated subsidiaries of UK parent companies. That involved various changes to proposed Section 389A about auditors' rights to information. We sought to bring within the regulatory ring-fence all subsidiaries of UK incorporated parent companies, no matter where they had been incorporated.
	The noble Lord, Lord Sainsbury, gave two reasons for rejecting the amendment. The first was, in his words, that:
	"In practice, it would be very difficult to enforce the obligations that could arise as a result of the amendment".
	The second was, again in his words, that,
	"to claim jurisdiction . . . risks undermining our position in resisting claims by foreign states to exercise jurisdiction in the UK".—[Official Report, 17/3/04; col. GC 86.]
	Having consulted expert outsiders about the Minister's view, we find difficulty with both of those reasons. On the first reason, that,
	"it would be very difficult to enforce the obligations that could arise as a result of the amendment",
	the alleged difficulty is no different from a case in which the subsidiary is a UK subsidiary that carries on business overseas. In such a case, the individuals or persons sought to be made criminally liable would not necessarily be present within the UK or amenable to the UK criminal process. Conversely, imposing a duty on a person, and making that person criminally liable for non-performance of the duty by reason of a connection with a non-UK incorporated subsidiary of a UK company does not involve any practical difficulty, where the relevant subsidiary was carrying on business in the UK and the person concerned was present in the UK. In truth, the place of incorporation of the subsidiary, as we have said several times, is immaterial. What matters is the place where the person concerned is to be found.
	As to the second reason—that it would become difficult to resist other foreign states exercising jurisdiction in UK—the Bill in its present form will seek to operate extraterritorially. A non-UK resident who has a relevant connection with a UK incorporated subsidiary, wherever that company is carrying on business, is subject to the duty and liability to be imposed by the Bill, whether or not he is a UK citizen. To include persons connected with non-UK incorporated subsidiaries will hardly be a large extension to that, given that by necessity the subsidiary has to be a subsidiary of a company which is subject to Part XI, Chapter V, of the Companies Act 1985.
	I hope that these reasons will explain why the Minister's response in Committee failed to convince me that establishing a level playing field between UK and overseas subsidiaries is undesirable. We believe that a level playing field will be best achieved if the problems concerning extraterritoriality are dismissed by restricting auditors' direct rights to information to employees solely working in the UK for UK incorporated companies. That is achieved by Amendments Nos. 5 and 6.
	Amendment No. 5 limits auditors' rights to information to employees of UK incorporated companies who are working in the UK. Amendment No. 6 ensures that where a parent company has a subsidiary company that is UK incorporated, with officers or employees located outside the country, the auditor will have to require the parent company to obtain the necessary information. This will place such officers and employees on a level playing field with those covered in Clause 8(3) of the Bill; for example, those who work for a subsidiary company that is not UK incorporated. Therefore, the auditor would not have any direct rights to information from employees of parent or subsidiary companies which are not UK incorporated.
	These amendments would achieve the level playing field that the Bill lacks at present; for example, consider a person who works physically in the offices of a French incorporated subsidiary of a UK incorporated parent company, but who is actually employed by another UK incorporated subsidiary. He could be a French citizen and he could be arrested and brought back to the UK for trial, while his fellow workers, who work for the French incorporated subsidiary, cannot be touched. The individual in question might well be quite unaware of the additional risks he runs by the chance of the country of incorporation of his employer. I beg to move.

Lord Sharman: My Lords, on the notion that this provision should apply extraterritorially and across a level playing field, we do not have to be ashamed, in any way, or worried about extraterritoriality. To those of us in business who face up to the wonderful Sarbanes-Oxley Act every day, this is the greatest piece of extraterritoriality ever seen. Why on earth should UK public companies have their chief executives and chief financial officers subject to fairly draconian criminal penalties in the US, merely because they have a listing there? They do not even have to trade there. We have to have a level playing field.
	I have to confess that I was a little confused by the amendments of the noble Lord, Lord Hodgson, because I am not sure where they get us. We must have the ability to compel—I hesitate to use that word— every element of a global company to provide necessary information to auditors and that must be on a level playing field.

Lord Sainsbury of Turville: My Lords, I appreciate the concern expressed by the noble Lord in Committee and again today about Clause 8 and the different legal position that may apply to two people operating out of the same overseas office, one of whom works for a British subsidiary of a British parent and the other who works for a foreign subsidiary of the same British parent. It is an interesting issue. We recognise the need to strike the right balance between the rights of auditors and the burdens placed on employees. However, we do not believe that the way to do this is to restrict auditors' rights to information in the manner proposed by the amendments.
	Clause 8 already provides important protections for those who will be required to provide information to auditors. A person does not commit an offence by innocently giving information that turns out to be false, or by failing to give information when it was not practicable to do so. That is not what happens and that is not our intention. We do, however, wish to catch those who deliberately choose to mislead.
	In order for an offence of giving false information to be committed, the information must be false in a material particular, and the person must have either known that the statement was false or been reckless as to whether it was false. It is a defence for a person charged with an offence under Section 389B of not providing information to show that it was not reasonably practicable to provide it. An overseas employee of a British subsidiary would, in any event, not commit an offence if what he or she either did, or failed to do, was outside territorial jurisdiction, although there may be enforceable civil obligations on him.
	We do not consider that the scope of an auditor's rights to information should be determined by where a person works, despite what the noble Lord, Lord Hodgson, says. It is right that where a person is an officer, employee or auditor of a British company, then he should be required to provide information directly to the auditor regardless of where he happens to work. Where a person is an officer, employee or auditor of an overseas company, the situation is different. We take account of that in the way that we have drafted the clause and we believe that it is right to do so.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the Minister for having returned to the issues that we raised in Committee and for kindly discussing them with us during a briefing.
	I understand the argument about deliberately choosing to move overseas to try to escape the provisions of this legislation. I accept that argument. However, we are trying to achieve a level playing field. The Government have not accepted that argument. We need to find a way to ensure that in each case employees, who may not know the place of incorporation of their employer, are treated in a fair way. I do not believe that the Government have managed to achieve that and I do not believe that they have shown sufficient readiness to meet the objective that we are seeking, as expressed by the noble Lord, Lord Sharman. I would like to test the opinion of the House.

On Question, Whether the said amendment (No. 5) shall be agreed to?
	Their Lordships divided: Contents, 71; Not-Contents, 125.

Resolved in the negative, and amendment disagreed to accordingly.
	[Amendment No. 6 not moved.]

Lord Sainsbury of Turville: moved Amendment No. 7:
	Page 10, leave out line 40 and insert "person within subsection (4) from whom the auditor has required the company to obtain the information or explanations."
	On Question, amendment agreed to.

Lord Hodgson of Astley Abbotts: moved Amendment No. 8:
	Page 11, leave out lines 1 to 4.

Lord Hodgson of Astley Abbotts: My Lords, this is a new amendment, which comes about because of conversations that we have had with the Institute of Chartered Accountants in England and Wales. The fear is that if this clause is not amended as proposed there may be unintended consequences. It is argued that it may upset the status quo under which auditors currently obtain the information that they need to perform their audit. It is something that I doubt the Government would intend at a time when the whole thrust of the Bill is to strengthen the quality of audit so as to underpin the operation of markets in the public interest. As I understand it, there is an established way by which relations between lawyers and auditors are managed at present in order to ensure that shareholders receive sufficient information about a company's financial affairs.
	This relationship has been developed over a number of years and works well. It is based on an agreed statement of guidance, statement 903, between the Council of the Law Society and the Institute of Chartered Accountants, which was supplemented by Audit 2/95 issued by the Audit Faculty of the Institute of Chartered Accountants, and more recently developed in international standards for audit, ISA 501. The purpose of these instruments is to ensure that, taking account of legal professional privilege, auditors and lawyers can have conversations about matters that are material to an audit, such as pending litigation. Those discussions can result in an agreed file note, which the auditor would then consider as sufficient file evidence to support the related disclosures in the financial statements. There is now a concern that Section 389A(7) could upset this balance.
	Clearly, the directors have the primary responsibility to ensure that the accounts present a true and fair view, and the Act rightly provides no exception to that regarding legal privilege. However, the auditor may then need further information about the underlying circumstances in order to judge whether the amounts and disclosures in the accounts give a true and fair view. If this exclusion for privileged information is introduced, lawyers will no longer be able to co-operate without expressly receiving a waiver of privilege from the directors, who may instead decide to protect their own position. Auditors would then be left to make a judgment on the disclosures without having access to the necessary information, which in turn is likely to increase the likelihood of auditors needing to qualify the scope of their reports or the reports themselves, and result in shareholders not receiving a true and fair view of the company's affairs.
	There is also a concern that this exclusion would create a loophole that would allow an unscrupulous management to hide its dealings from auditors and therefore, ultimately, from shareholders. Indeed, in Europe's largest accounting scandal, the Parmalat scandal, a "legal factory" firm of New York lawyers with only one client is alleged to have been one of the main tools used to mislead the auditors.
	We understand and agree that there is a need for privilege. We suggest that the best way forward is to rely on existing instruments that govern the relations between lawyers and accountants on these matters. That would mean deleting Section 389A(7) from Clause 8 to continue to allow privileged information to be made available to auditors under existing arrangements. Alternatively, the legislation could be amended to make clear that such privileged information should not be passed any further by the auditors. This is an important issue that needs to be clarified. I beg to move.

Lord Sainsbury of Turville: My Lords, as I said in the debate that we had on this issue in Committee, it was not our intention that Clause 8 should change the position in respect of legal professional privilege. However, Clause 8 makes a number of other changes to the existing position, most notably by inserting a new criminal offence of failing to provide information or explanations to an auditor when required to do so. We therefore considered that in order to avoid any uncertainty the Bill should make the position in respect to legal professional privilege absolutely clear.
	Disclosure to the auditors could involve an infringement of legal professional privilege. For example, in circumstances where privileged information calls into question the truth and fairness of the accounts, I consider that disclosure to the auditors might lead to disclosure to the public in the auditors' opinion. It is therefore unlikely that auditors would currently have the power to require the production of such information. Subsection (7) therefore reflects that position.
	As I said in Committee, I consider that directors would rather waive their right to legal professional privilege and disclose the information to the auditor than protect the privileged information and risk the adverse consequence of qualified accounts. Even if the qualification is framed in terms of the auditors not being able to form an opinion on the accounts, that would send a strong message about the accounts to those outside the company.
	I also draw noble Lords' attention to the 10th Report of the 2003–04 Session of the Joint Committee on Human Rights. In considering the Bill, the Committee looked at Clause 8. They recognised that it would allow auditors access to a wide range of material and would require many people to provide information to the auditors. However, the committee considered that the protection of information that is subject to legal professional privilege,
	"seems to us to provide adequate protection to meet the requirements of ECHR Article 8.2".
	For those reasons, I cannot agree to this amendment.

Lord Hodgson of Astley Abbotts: My Lords, I think that I am reassured by what the Minister said. He said that there was no plan to change the existing position. I accept the argument that qualification of the accounts will be a discipline to the directors. The complexity of the issues of professional privilege is such that I will not delve any further into it at this stage. I am grateful to the Minister for the explanation and for making those points. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 9 [Statement in directors' report as to information disclosed to auditors]:

Lord Sainsbury of Turville: moved Amendment No. 9:
	Leave out Clause 9 and insert the following new Clause—
	"STATEMENT IN DIRECTORS' REPORT AS TO DISCLOSURE OF INFORMATION TO AUDITORS
	(1) Part 7 of the Companies Act 1985 (c. 6) (accounts and audit) is amended as follows.
	(2) In section 234 (duty to prepare directors' report), after subsection (2) insert—
	"(2A) If section 234ZA applies to the report, it shall contain the statement required by subsection (2) of that section."
	(3) After section 234 insert—
	"234ZA STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS
	(1) This section applies to a directors' report unless the directors have taken advantage of the exemption conferred by section 249A(1) or 249AA(1).
	(2) The report must contain a statement to the effect that, in the case of each of the persons who are directors at the time when the report is approved under section 234A, the following applies—
	(a) so far as the director is aware, there is no relevant audit information of which the company's auditors are unaware, and
	(b) he has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company's auditors are aware of that information.
	(3) In subsection (2) "relevant audit information" means information needed by the company's auditors in connection with preparing their report.
	(4) For the purposes of subsection (2) a director has taken all the steps that he ought to have taken as a director in order to do the things mentioned in paragraph (b) of that subsection if he has—
	(a) made such enquiries of his fellow directors and of the company's auditors for that purpose, and
	(b) taken such other steps (if any) for that purpose,
	as were required by his duty as a director of the company to exercise due care, skill and diligence.
	(5) In determining for the purposes of subsection (2) the extent of that duty in the case of a particular director, the following considerations (in particular) are relevant—
	(a) the knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by the director in relation to the company, and
	(b) (so far as they exceed what may reasonably be so expected) the knowledge, skill and experience that the director in fact has.
	(6) Where a directors' report containing the statement required by subsection (2) is approved under section 234A but the statement is false, every director of the company who—
	(a) knew that the statement was false, or was reckless as to whether it was false, and
	(b) failed to take reasonable steps to prevent the report from being approved,
	is guilty of an offence and liable to imprisonment or a fine, or both.""

Lord Sainsbury of Turville: My Lords, I will speak first to Amendment No. 9. Noble Lords will recall the long and valuable debate that we had on Clause 9 during the Committee stage of this Bill. I reflected long and hard on the concerns expressed during that debate, and I agree that the clause was not as clear as it should have been about what was required of directors. This amendment is designed to clarify the position. Our policy remains the same; we want to ensure that directors think hard about whether there is anything that they know that the auditor needs to know in order to do his job properly.
	Noble Lords were concerned that under the original Clause 9 an individual director would be signed up to a position on disclosure that related not only to himself but to other directors. He would therefore have to concern himself with the position of the other directors in relation to disclosure. That is not our aim. Subsection (2) of the new Section 234ZA makes it clear that while the statement in the directors' report is a collective statement, it relates to the case of each individual director.
	We remain concerned that in making the statement a director should consider not only what relevant audit information he knows, but what relevant audit information can be ascertained by him and whether the auditors are aware of it. Subsection (2)(b) therefore requires that each individual director confirms that,
	"he has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company's auditors are aware of that information".
	Subsection (4) expands on that to make clear that those steps are the steps required of him by his existing common-law duty to exercise due care, skill and diligence.
	Subsection (5) reflects the common-law position that under some circumstances—that is, where the director's particular function in the company or his personal expertise makes it appropriate—the duty as a director to exercise due care, skill and diligence may be extended. Again, that reflects the common-law position and addresses the concern expressed by noble Lords that the obligation on a part-time non-executive director should not be the same as that on a full-time finance director. Subsection (6) makes clear that the criminal penalty applies only to directors who know that the statement is false, or are reckless as to its falsehood, and fail to take reasonable steps to stop the directors' report being approved.
	Noble Lords were also concerned about the inquiries that directors would have to undertake in order to be able to make the statement, and what they "ought to know". I consider that the revised statement makes it clear that we are only expecting directors to comply with their existing common-law duty to exercise care, skill and diligence as far as concerns the steps which the statement indicates have been taken to ascertain relevant audit information.
	I turn now to Amendments Nos. 10 and 11. As I have said, we have reflected long and hard about the concerns that were expressed in Committee. We have sought to clarify what will be required of directors and to allay the concerns that were expressed. Subsection (3) of new Section 234ZA defines "relevant audit information" for the purposes of the statement as information that is needed by the company's auditors in connection with preparing their report. That definition captures the concept of materiality, since information that is not material to the auditor's report would not be needed by the auditor in connection with preparing the report.
	It is not clear how the addition of the word "material" would further clarify the position for directors. Indeed, it seems to complicate matters by suggesting that there exists a category of information that is relevant—that is, information that is needed by the auditors in connection with preparing their report—but that is not material. If information is needed by the company's auditors in connection with preparing their report, it is difficult to see how it would not be material. If information is needed by the company's auditors, it should be information covered by the statement. I consider that the changes to Clause 9, which I have outlined, address the concerns that were expressed in Committee and that the addition of a materiality test would lead to confusion.
	In conclusion, I hope noble Lords will agree that the Government's amendments go a long way towards addressing the concerns raised in Committee and that Amendments Nos. 10 and 11 are not necessary. I am grateful to noble Lords for their help in improving this important provision. I beg to move.

Lord Hodgson of Astley Abbotts: moved, as an amendment to Amendment No. 9, Amendment No. 10:
	Line 17, after "no" insert "material"

Lord Hodgson of Astley Abbotts: My Lords, we are extremely grateful to the Minister for the redrafting of this clause. The obligations of the directors are now much better focused and defined. The issue concerning the directors' relationship with the auditor and what the auditor does not know, but that the directors ought to know he does not know, has been grasped. The "joint and several" issue has also been addressed. That is all very worthwhile.
	I took careful note of the Minister's pre-emptive barrage about Amendment No. 10, but I should still like to have a go at persuading him to go a step further. In Committee, we said that we wanted to,
	"reassure directors, executive or non-executive, that they cannot be hung on . . . a small event".—[Official Report, 17/3/04; col. GC 122.]
	I am not sure that subsection (3), to which the Minister referred, meets that. Therefore, we continue to stick to the line of inserting the word "material". The Minister has come a long way to meeting our requirements, but inserting the word "material" would be helpful.
	As we have discussed, there is now a qualification to the importance of the audit information that the directors must disclose. When the Bill is amended, it will read that the director has to be aware that,
	"there is no relevant audit information of which the company's auditors are unaware".
	But that qualification refers to "relevant" information rather than "material" information.
	Confusingly, the importance of the word material has been consistently endorsed by the Government in the DTI's consultative document, entitled, Draft Regulations on the Operating and Financial Review and Directors' Report of May 2004, for example. That document contains the Government's proposals to make operating and financial reviews for quoted companies compulsory through statutory provisions as an addition to the directors' report.
	Paragraph 3.24 of the document states:
	"The Company Law Review envisaged that certain topics should always be covered in an OFR because they will always be 'material', while others should be included whenever directors consider them 'material' to an understanding of the business. The Government supports this approach".
	While I understand that the OFR and directors' report are quite different, there are clearly similarities in that both involve disclosure from directors on financial and other such matters concerning their companies.
	The Government have tried to square the circle in paragraphs 3.25 and 3.26 of that document where explanations are given about why the Government see it unnecessary to use the term "material". It goes little further than to divulge that information being included
	"to the extent necessary for an understanding of the business"
	is a more desirable phrase from the point of view of the Modernisation Directive—a European Parliament directive dated 18 June 2003—than the word "material", which, apparently, the Government believe can be confusing in this context.
	Indeed, "materiality" is a word that is used in the Institute of Chartered Accountants in England and Wales handbook to give guidance to accountants about the levels of information that they should receive from directors. The ICAEW handbook, issued in August 1970—34 years ago—states:
	"In connection with the preparation and audit of our accounts for the year ended . . . the directors have made estimates to the amounts of the ultimate liabilities (including costs) which might be incurred, and are regarded as material, in relation to the following matters on which you have been consulted. We should be obliged if you would confirm that in your opinion these estimates are reasonable".
	In those circumstances—this has been the case for more than 34 years—"material" is and has been the qualification against which the auditors themselves measure the significance of the information provided by the directors. It is now slightly mystifying that since this is the prerequisite for information from the viewpoint of the auditors, it is not mirrored as the prerequisite for information from the viewpoint of the directors.
	"Material" also appears frequently in previous Companies Acts and it is prevalent throughout the Sarbanes-Oxley Act, of which we heard a great deal in Committee. Rule 203, Section 303–5, is headed, "Representations and conduct in connection with the preparation of required reports and documents". That is a very similar section to new Section 234ZA in this Bill. The section begins:
	"No director or officer of an issuer shall, directly or indirectly:
	(1) Make or cause to be made a materially false or misleading statement to an accountant in connection with; or
	(2) Omit to state, or cause another person to omit to state any material fact necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading".
	"Material" is one of the most frequently recurring words in this section. I need not remind noble Lords that the Government have frequently said that the strategic purpose behind this Bill is as a step—mirroring the Sarbanes-Oxley Act—to help to restore investor confidence in companies and financial markets following recent major corporate failures.
	"Materiality" is clearly a much valued word in the American legal system and up to now has fitted comfortably within the British legal system. Its ubiquity among consultative documents, Acts, directors, auditors' handbooks and the Sarbanes-Oxley Act itself vouches for its importance. I believe that the Government should consider again inserting it into this Bill. I beg to move.

Lord Sharman: My Lords, earlier in these discussions, the noble Lord, Lord Hodgson, made reference to the song, "American Pie". I am bound to say that when I read this amendment, I was moved to quote the "Halleluja Chorus" because the Government have done a remarkably good job of responding to our concerns. Having responded to the concerns expressed in Committee so well, is this also an appropriate time for the Minister to respond to the other commitments made at the time, to provide a statement on directors' and auditors' liability? That is my first question.
	Amendments Nos. 10 and 11, up are amendments to Amendment No. 9. We really are struggling with definitions here. Subsection (3) refers to the substance of an amendment I proposed in Committee, using the phrase,
	"information needed by the company's auditors in connection with preparing their report".
	A number of defined terms and phrases are bandied about. As the noble Lord, Lord Hodgson, pointed out, "materiality" is one of them, while "significant" is another. The term "trivial" is a new one that has been introduced into accounting parlance of late.
	The issue here is that, in general, "materiality" in the context of an audit is expressed as a financial amount. Audit committees these days will discuss with their auditors the concept of "materiality" which, in broad terms, means the degree of accuracy in auditing that is applied to a set of financial statements. Therefore, although I understand why the noble Lord, Lord Hodgson, is anxious to define this matter better, it would be wrong to include "materiality" at this stage. We need a term that encompasses more than "materiality" because, to be frank, in some circumstances the word "materiality" could result in information that is significant or relevant not being made available to the auditors. For that reason, the term "relevant" is probably better. We need to look at this matter carefully so as to ensure that the auditor gets what he needs. That, I think, is the substance of the matter.
	I have a problem with the word "materiality". "Significant" might be better, while something that is clearly not "trivial" might be even better than that.

Lord Sainsbury of Turville: My Lords, I apologise to the noble Lord, Lord Hodgson, for pre-empting his comments. I do not have much to add to what I said before except to reiterate the point that subsection (3) of new Section 234ZA defines relevant audit information for the purpose of the statement as,
	"information needed by the company's auditors in connection with preparing their report".
	That definition quite clearly captures the concept of materiality since information that is not material to the auditor's report would not be needed by the auditors in connection with preparing the report. The noble Lord, Lord Sharman, asked the question clearly and sensibly: does the auditor get what he needs? We believe that our definition ensures that he would.
	I turn to the question of directors' and auditors' liability. I am not totally surprised that the issue was raised during this debate. There was considerable interest in the consultation on directors' and auditors' liability. The responses reflected a wide range of views, many of which were vigorously expressed and noble Lords will have seen from today's press that divergent views continue to be put forward on these issues. I do not think that the Government are in any doubt about the importance business attaches to these matters. We want high quality candidates from all backgrounds to come forward to serve as directors, and we want as wide a range of auditors as possible. We also want companies to hold to account negligent or badly performing directors and auditors.
	At Second Reading I indicated that the Government would want to consider all the responses carefully, and that is what we are doing. Because of the importance of ensuring competition in the audit market, we have recently sought the advice of the OFT on whether reforms of the law on auditors' liability to be limited by means of a negotiated cap would significantly enhance competition in the GB audit market and, if so, how. I should make it clear to noble Lords that this does not mean we have taken a decision to introduce such a measure. We are considering all the options and the implications that will arise from each. That, of course, may also include the option of doing nothing.

Lord Hodgson of Astley Abbotts: My Lords, we have considered this hard enough and for long enough. I accept the arguments about the word "significant" and that there are better terms. I accept also that the amendment provides a hugely improved framework for the clause, for which we are grateful. I think that I had better take 90 per cent of the cake and forget about the last 10 per cent. I beg leave to withdraw the amendment.

Amendment No. 10, as an amendment to Amendment No. 9, by leave, withdrawn.
	[Amendment No. 11, as an amendment to Amendment No. 9, not moved.]
	On Question, Amendment No. 9 agreed to.
	Clause 11 [Disclosure of tax information by Inland Revenue to facilitate application for declaration that accounts are defective]:

Lord Sainsbury of Turville: moved Amendment No. 12:
	Page 13, line 18, leave out "statute" and insert "any statutory provision"
	On Question, amendment agreed to.
	Clause 13 [Power to specify bodies who may issue reporting standards]:

Lord Sainsbury of Turville: moved Amendment No. 13:
	Page 17, line 38, leave out "and other supplementary and incidental"
	On Question, amendment agreed to.
	Clause 14 [Supervision of periodic accounts and reports of issuers of listed securities]:

Lord Hodgson of Astley Abbotts: moved Amendment No. 14:
	Page 18, line 39, leave out "is to" and insert "may"

Lord Hodgson of Astley Abbotts: My Lords, subsection (7) of Clause 14, with which this amendment is concerned, enables the FSA forcibly, so to speak, to refer certain cases that do not fall within its remit to the Financial Reporting Review Panel. We understand that the Government want to build on the success of the FRRP by expanding its remit into new areas, but the question I want to put to the Minister is whether it is sensible to do that so inflexibly and without limit.
	The provisions in the Bill will add to an already dramatic increase in the workload of the FRRP, an issue we discussed during our debates in Grand Committee. The expansion of the workload began in the early part of 2003 when, as part of a review of accountancy regulations, the DTI demanded that the FRRP should adopt a proactive approach to its scrutiny of annual reports. As I have said, it is understandable that the Government wish to further the success of the FRRP by expanding its remit and, in general terms, we support that expansion.
	At present the panel must look only at annual reports of Companies Act companies following a complaint or press report. However, this Bill will enable the panel to review interim statements and the accounts of other issuers such as overseas groups with primary listings in London as well as other companies such as UK building societies. As we discussed, the Bill will also allow the Inland Revenue to pass information about suspect accounts to the FRRP and permit the panel to apply for a court order to release documents relating to a company's accounts.
	All this adds up to a significant increase in the potential workload of the FRRP. Under the clause, there is the potential for the FSA to require the FRRP to investigate cases even if the panel does not believe them to be justifiable. Given the additional complications of cost, we believe that there is a strong argument for an amendment which enables the FRRP to refuse a referral from the FSA if the panel believes the case to be unjustified, if it is overburdened with work or if cost sharing cannot be agreed. The amendment would change "is to" to "may", thus enabling the FRRP to maintain a degree of flexibility while not preventing it from using its expertise to help with cases referred by the FSA. I beg to move.

Lord Sainsbury of Turville: My Lords, as the noble Lord said, this is our second time around this particular track. The effect of the amendment would be to allow the panel to choose whether to take a case referred to it by the FSA in the particular and exceptional circumstances provided for in subsection (7) of the clause.
	I think it would be helpful to refresh our memories as to why we need subsection (7) in the first place. It may be that the noble Lord's concern is misplaced and I hope that if I set out exactly how we envisage this close working relationship between the FSA and the FRRP is to operate in practice, he will be reassured on the points he has mentioned.
	Clause 14 allows the Secretary of State to appoint the panel to review the interim and annual accounts of some or all of the total population of issuers and to report back to the FSA on them. The FRRP already reviews the annual accounts of Companies Act companies. The point of the clause is to enable the Secretary of State also to give it a role in reviewing two new classes of document which are closely related to its existing work: first, interim accounts as well as annual accounts and, secondly, accounts of entities which list their securities but are not Companies Act companies.
	We have left open the precise scope of the new FRRP remit. This is because there are a significant number of fairly obscure or exotic issuers on the list which it would not make sense for the FRRP to get involved in. I am referring to overseas companies with specialist debt, such as Eurobonds. Keeping their accounts under review will remain solely the function of the FSA. But overseas companies with primary listings in London, for example, would fall within the new FRRP remit. They are clearly of greater interest to the general public and that is where the resource of the FRRP should focus in taking forward its proactive work.
	We recognise that it is never going to be an exact science to determine which types of entity might be found to have some accounting problem. If the FSA thinks it has detected such a problem, we want it to be able to call on the expertise of the FRRP, notwithstanding the fact that the entity is not in the FRRP's core remit. It is of course the FRRP itself which, in its report to the co-ordinating group on audit and accounting issues at the end of 2002, proposed both the move to proactivity and the extension of its remit.
	Noble Lords will agree that it is important to ensure that there are no gaps, not least in order to provide market reassurance. That is why subsection (7) makes provision for unexpected or exceptional cases to none the less be referred to the FRRP. It does not hinder flexibility—quite the opposite; it ensures that all bases are covered. I hope therefore that the noble Lord can agree that there is no need to change the wording.

Lord Hodgson of Astley Abbotts: My Lords, as the Minister said, this is the second time round on this issue. I think I am reassured by his words. One of the issues we have to consider is that of cost and how the FSA and FRRP will sort out what might be the considerable costs involved in an investigation. Presumably the issue will be left for them to fight over in due course. I understand that we do not want gaps in the regulatory cover through which issues may fall. Given that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 16 [Grants to bodies concerned with accounting standards etc.]:

Lord Sainsbury of Turville: moved Amendment No. 15:
	Page 20, line 14, after "with" insert "any of the"

Lord Sainsbury of Turville: My Lords, this group of amendments is long but I shall try to summarise them briefly.
	A strong and effective regulator is critical to the success of the new independent regulatory regime that we are putting in place through the Bill and through other non-legislative measures. It is important that the regulator can act decisively and courageously without being threatened with legal action. Not only must it act courageously, it must be seen to be able to do so if it is to be credible with those it regulates and with the markets and regulators in the United States and elsewhere. It must be able to attract and retain top quality people who are credible with business, the profession and the investment community.
	We do not want the regulator to be afraid of legal action so that it collects more information than it would otherwise need, or takes longer to make decisions than would otherwise be the case. Over-regulation and excessive caution benefit no one.
	For those reasons, after very careful consideration, we have concluded that it would be right to provide an exemption from liability for the regulator and its people, provided that they act in good faith and do not breach Section 6(1) of the Human Rights Act. We are mindful of the fact that, in the very unlikely event of the regulator getting things wrong, an injured party would be deprived of the right to claim damages. But we consider that the public interest in effective and robust regulation outweighs this consideration. The decisions of the regulator will, of course, remain open to judicial review.
	The exemption is to apply only to the regulatory activities of the regulator; it will not apply to any other activities that the regulator might undertake. In practice, as noble Lords are aware, we expect that the regulator will be the FRC and its subsidiary boards. Most of the regulatory activities that we think it right to cover are listed at Clause 16(2), the grant-making power. It is necessary, however, to add four activities to the list, and this is the purpose of Amendment No. 19.
	The first three activities relate to the work of the Accountancy Investigation and Discipline Board in investigating and disciplining accountants who are not auditors. The AIDB's activities in relation to auditors are already covered under Clause 16(2)(f). The last activity relates to the work of the Professional Oversight Board for Accountancy in overseeing the self-regulatory activities of the major accountancy bodies. The POBA's other activities are covered under Clause 16(2)(f) and (g). Thus the exemption will cover the regulatory activities of the FRC, its subsidiaries, its various boards and disciplinary tribunals, as well as the individuals involved in carrying out those activities.
	The exemption itself is contained in the new clause which we are proposing should be introduced into the Bill. This new clause provides that when a body is funded under the grant-making power in Clause 16, then for a period of 12 months following the most recent payment of grant, the body, its subsidiaries and their people are not liable in damages for anything done or not done in connection with any of the activities listed in Clause 16(2). I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, we are in general agreement with these numerous amendments which, as the Minister explained, extend the role of the FRC and, among other things, deal with protection against liability for damages for a period of 12 months, beginning on the date on which the grant is paid. Our Amendments Nos. 29 and 30 seek to increase the exemption period from 12 months to 36 months. I should emphasise that we have tabled the amendments in order to probe the Government on why a 12 month period has been chosen and why it is not a permanent exemption.
	Surely the central reason for the Government's amendments, as explained by the noble Lord, Lord Sainsbury, is to protect the FRC from the consequences of litigation at all times. If annual grants are to be given to the FRC, the logic in the chosen timeframe of 12 months is understandable but ill-founded. As it currently stands, the government amendment achieves the aim of exempting the FRC from liability but gives very little room for manoeuvre.
	In an earlier life, I was a member of the disciplinary panel of the Securities and Futures Authority, a recognised supervisory body under the Securities and Investments Board. We had the same statutory immunity as is proposed here, given under the Financial Services Act 1986. As the Minister has made clear, without it none of us would have been prepared to serve on such a panel.
	But two practical issues are relevant to our discussions on this proposal and need to be answered. In the SFA—as I am sure will be the case under these proposals—a good many disciplinary cases went on for more than a year. So, if immunity is withdrawn, what will be the position in regard to cases in progress? Obviously determination will not have been reached; will people find that the immunity has died away?
	I was involved in the investigation of the Barings case, which was highly contested. It went on for a very long time—certainly for more than 12 months—and it would have been very difficult had the members of the disciplinary committee lost their statutory immunity in midstream.
	Secondly, what will happen in the future if it is decided, for whatever reason, that the tripartite approach envisaged in the Explanatory Notes—but not written into the Bill—should be brought to an end? Inter alia, linking statutory indemnity to the payment of a government grant effectively hands the Government an enormously powerful, if at present hidden, control mechanism. An exemption period of 36 months—although, admittedly, an arbitrary figure—would leave room to breathe; it would give time for negotiations and adjustments, if needed.

Lord Sainsbury of Turville: My Lords, the amendments have been tabled to extend the exemption period from 12 months to 36 months. I understand the reasons for the amendments, but I do not think that they are necessary.
	If an action is performed within the exemption period, it will be covered by the exemption in perpetuity. Let me explain why. The new clause provides that there will be exemption from liability to pay damages in respect of acts or omissions arising during the 12 months beginning with the payment of grant. It does not say that the exemption from liability will last for only those 12 months.
	The purpose of the 12-month exemption period is to ensure that if the Secretary of State decides to stop paying grant to a body, perhaps because she considers another body to be better placed to carry out the functions or she is concerned about the way in which the body is performing its functions, then the exemption does not continue indefinitely. The body will continue to be exempt for a period of 12 months from the most recent grant payment, so covering it for activities that it may need to carry out in order to withdraw from the grant-funded activities. I do not believe that it is necessary or desirable to extend this winding-up period to three years.
	Under the clause, a body or individual enjoying exemption for a thing that it does or fails to do during the exemption period remains exempt in perpetuity. There is no retrospective liability; it cannot be held liable for damages for that action simply because the exemption period has expired. That is why I do not believe that these amendments are appropriate.

On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendments Nos. 16 to 19:
	Page 20, line 18, after "by" insert "auditors or"
	Page 20, line 20, at end insert "or any requirements of directly applicable Community legislation relating to company accounts"
	Page 20, line 25, leave out "and maintaining" and insert ", maintaining or carrying out"
	Page 20, line 27, at end insert—
	"(ga) carrying out investigations into public interest cases arising in connection with the performance of accountancy functions by members of professional accountancy bodies;
	(gb) holding disciplinary hearings relating to members of such bodies following the conclusion of such investigations;
	(gc) deciding whether (and, if so, what) disciplinary action should be taken against members of such bodies to whom such hearings related;
	(gd) supervising the exercise by such bodies of regulatory functions in relation to their members;"
	On Question, amendments agreed to.

Lord Hodgson of Astley Abbotts: moved Amendment No. 20:
	Page 20, line 30, at end insert—
	"( ) Any body to which the Secretary of State makes a grant under this section shall produce an annual report which shall be laid before both Houses of Parliament."

Lord Hodgson of Astley Abbotts: My Lords, Clause 16 allows the Secretary of State to make grants to all the bodies concerned with the making and enforcing of accounting standards. It is not clear to us, from the face of the Bill, how these grants are to be recorded and reported. It would therefore seem appropriate for the Financial Reporting Council to prepare an annual report and lay it before Parliament, detailing the grants received and the work carried out. Since the FRC supervises all the relevant bodies and it is a reporting council, the omission seems conspicuous. Why should the FRC not be required to lay an annual report before Parliament?
	When the Minister replies, perhaps he could answer one other question, which I probably should have raised before. I took the trouble to print off the latest FRC annual report from its website—85 pages long, and very thorough it is, too—but nowhere can I find any mention of to whom it is responsible. Where does the FRC sit in the chain of command? Perhaps the Minister could give further details of how the Financial Reporting Council is to fulfil its task of reporting and to whom it is technically responsible. I beg to move.

Lord Evans of Temple Guiting: My Lords, Section 729 of the Companies Act 1985 requires the Secretary of State to prepare and lay before Parliament a general annual report of matters within the Companies Acts. In addition, Schedule 13 to the Companies Act 1989 requires a body that is exercising the Secretary of State's delegated statutory functions in respect of auditors to make a report to the Secretary of State which is then laid before Parliament. Once the statutory functions are delegated to the Professional Oversight Board for Accountancy of the FRC, the POBA's report to the Secretary of State will be laid before Parliament.
	However, I do not believe that it would be appropriate to make all the activities of the FRC the subject of a statutory reporting requirement. In the first place, the majority of the activities undertaken by the FRC and its boards are not statutory ones. Examples include the POBA's oversight of the regulatory activities of the major professional accountancy bodies and the AIDB's role in respect of disciplinary cases for accountants.
	Similarly, the FRC is not obliged under statute to provide independent arrangements for audit standard setting, monitoring of audits or the investigation and discipline of auditors. The Bill requires the supervisory bodies for auditing to participate in independent arrangements in order to meet the new recognition criteria. It does not require the bodies to participate in particular named arrangements, although in practice we anticipate that they will comply with the Bill's requirements by following the FRC's standard setting, monitoring and disciplinary arrangements. In these circumstances, I believe it is right that the supervisory bodies, rather than the FRC, should be obliged to report on the arrangements in which they are participating.
	It is right that a body that receives public funding should be publicly accountable. The FRC publishes an annual report on the exercise of its functions, and it will continue to do so. Indeed, it is required by its Articles of Association to publish an annual report,
	"for the purposes of assessing and reviewing the contribution of persons concerned with"
	the regulatory functions of the FRC. The FRC's annual report will, of course, continue to be publicly available on its website.
	As I have explained, there are already provisions for reports on Companies Acts matters to be laid before Parliament. I do not believe that there should be yet another. The Secretary of State will—in her own report under Section 729 of the 1985 Act—make reference, where appropriate, to the FRC report. In the unlikely event that there was a matter falling within Clause 16 which should be reported on but was not covered in the FRC's report, this would be covered in the Section 729 report.
	The noble Lord, Lord Hodgson, asked two questions which I hope I can answer. He asked how the FRC is accountable if it is not required to report. That was not exactly his question, but it was the intent behind it. As I have said, the FRC publishes an annual report in the exercise of its functions, and will continue to do so. Indeed, it is required by its Articles of Association to publish an annual report,
	"for the purposes of assessing and reviewing the contribution of persons concerned with"
	the regulatory functions of the FRC. The FRC's annual report will, as I have said, continue to be publicly available on its website. The POBA will be required to report to the Secretary of State on the exercise of any delegated statutory functions, and this report will be laid before Parliament.
	The FRC and its boards have developed aims and objectives, and the boards have also developed detailed work programmes. These are published documents, against which the performance of the FRC and its boards can be assessed. In addition, the FRC will be holding annual open meetings for stakeholders. The FRC is also considering publishing in advance agendas of meetings, and notes of discussions at Council meetings, and the meetings of its individual boards, where this is appropriate. For some boards—such as the Accountancy Investigation and Discipline Board and the POBA—confidentiality considerations will, of course, preclude making notes of meetings public.
	The noble Lord, Lord Hodgson, also asked to whom the FRC is accountable. As I have said, the Secretary of State is responsible for matters contained in the Companies Acts. In particular, the POBA will be required to report to her on the exercise of any delegated statutory functions, and this report will be laid before Parliament.
	I hope that I have managed to answer the noble Lord's questions and that he will feel able to withdraw his amendment.

Lord Hodgson of Astley Abbotts: My Lords, once again, I am grateful to the Minister for his barrage of information. I certainly would not wish to create a duplication of arrangements that already exist. The Minister covered the points that I was trying to make and there will be opportunities for both Houses to consider the matters of relevance in this important area. So far as responsibility for the FRC is concerned, it is split several ways: in part, it lies with the Secretary of State; in part, it lies elsewhere. I am not sure how satisfactory that is, but it has nothing to do with the annual report which my amendment concerned. I therefore beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Sainsbury of Turville: moved Amendments Nos. 21 to 24:
	Page 20, line 35, after "established" insert "under its constitution or"
	Page 20, line 37, at end insert—
	""accountancy functions" means functions performed as an accountant, whether in the capacity of auditor or otherwise;
	"company" means a company within the meaning of the Companies Act 1985 (c. 6);"
	Page 20, line 40, at end insert—
	""professional accountancy body" means—
	(a) a supervisory body which is recognised for the purposes of Part 2 of the Companies Act 1989 (c. 40), or
	(b) a qualifying body, as defined by section 32 of that Act, which enforces rules as to the performance of accountancy functions by its members,
	and references to the members of professional accountancy bodies include persons who, although not members of such bodies, are subject to their rules in performing accountancy functions;"
	"public interest cases" means matters which raise or appear to raise important issues affecting the public interest;
	"regulatory functions", in relation to professional accountancy bodies, means any of the following functions—
	(a) investigatory or disciplinary functions exercised by such bodies in relation to the performance by their members of accountancy functions,
	(b) the setting by such bodies of standards in relation to the performance by their members of accountancy functions, and
	(c) the determining by such bodies of requirements in relation to the education and training of their members;"
	Page 20, line 42, at end insert—
	"(5A) In their application to Scotland—
	(a) subsection (2)(a) is to be read as referring only to accounting standards applying in relation to the accounts of companies or bodies (other than companies) established for the purpose of carrying on any kind of business, whether or not for profit;
	(b) subsection (2)(ga) to (gc) are to be read as referring only to accountancy functions performed in relation to companies or such bodies, and
	(c) subsection (2)(gd) is to be read as referring only to regulatory functions exercised in relation to the performance of such accountancy functions;
	and in paragraph (a) above "business" includes the provision of benefits to members of the body concerned."
	On Question, amendments agreed to.
	Clause 17 [Levy to pay expenses of bodies concerned with accounting standards etc.]:

Lord Hodgson of Astley Abbotts: moved Amendment No. 25:
	Page 21, line 34, leave out "accounts" and insert "records"

Lord Hodgson of Astley Abbotts: My Lords, Amendments Nos. 25, 26 and 27 are new and controversial. Clause 17 gives the Secretary of State the power to impose a levy on listed companies and members of the consultative committee of accountancy bodies to ensure that the FRC has security of funding. The Institute of Chartered Accountants has brought to our attention the potentially confusing terminology in subsections (7) and (8). They specify that the recipients must keep accounts of the amounts of levy received and prepare statements of such amounts, which must be certified by the persons appointed by the Secretary of State. The institute is concerned about the use of the word "accounts" in this context. It feels that it could be construed too narrowly and be understood to imply that proper recording in some kind of levy receipt ledger is necessary, whereas the Bill seems really to require a report that the body has kept proper records of the levy received and that a statement has been accurately extracted from those records in a way that complies with the regulations. The institute argues that the term "records" might better reflect the objectives of Clause 17(7) and (8). I beg to move.

Lord Sainsbury of Turville: My Lords, as the House will know, I share the desire for transparency and accountability on the part of the regulator. I am not persuaded, however, that the amendments are necessary to achieve that aim.
	The purpose of Clause 17(7) and (8) is to ensure that the recipient of the levy, if we have to impose one—noble Lords will recall that we very much hope that this will not be necessary—must account openly for the sums received and the use to which those sums are put. That seems right and proper. The precise form and content of this information will be set out in the regulations imposing the levy and the House will have an opportunity to debate the content of those regulations.
	The amendments would alter the scope of the information that the specified recipient of the levy is obliged to provide. They would remove the requirement for the recipient to keep and prepare proper accounts in relation to the levy. Instead, the recipient would be required to keep proper records and prepare a statement, but not a statement of account. I do not consider that to be necessary or desirable. It is important that the recipient keeps and prepares accounts in relation to any sum received through the levy.
	My noble friend Lord Evans has already described the extensive arrangements that the FRC is putting in place to report publicly on its activities. I shall not repeat that now, but I remind noble Lords that the FRC will need to report through the Secretary of State to Parliament on the exercise of statutory functions in relation to the recognition of audit supervisory bodies. The FRC's annual report will be available on its website. Those arrangements, together with the requirements set out in Clause 17(7) and (8), are sufficient to ensure that there is transparency about the use to which any levy is put and the value for money that that represents. I should be very reluctant to impose additional reporting requirements on the regulator. After all, we want it to spend its time regulating, not writing endless similar reports.

Lord Hodgson of Astley Abbotts: My Lords, as I said when I was moving the amendment, the matter was raised with us by the Institute of Chartered Accountants. Far be it from me, as a non-accountant, to try to argue the difference between accounts and records. I thank the Minister for his reply and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendments Nos. 26 and 27 not moved.]

Lord Sainsbury of Turville: moved Amendment No. 28:
	After Clause 17, insert the following new clause—
	"EXEMPTION FROM LIABILITY
	(1) Where a grant has been paid by the Secretary of State to a body under section 16, this section prevents any liability in damages arising in respect of certain acts or omissions occurring during the period of 12 months beginning with the date on which the grant was paid.
	(2) In this section—
	the exemption period" means the period of 12 months mentioned in subsection (1);
	"a relevant body" means the body mentioned in that subsection or a body carrying on any subsidiary activities of that body (within the meaning of section 16);
	"section 16(2) activities" means activities concerned with any of the matters set out in section 16(2).
	(3) Neither a relevant body, nor any person who is (or is acting as) a member, officer or member of staff of a relevant body, is to be liable in damages for anything done, or omitted to be done, during the exemption period for the purposes of or in connection with—
	(a) the carrying on of any section 16(2) activities of the body, or
	(b) the purported carrying on of any such activities.
	(4) Subsection (3) does not apply—
	(a) if the act or omission is shown to have been in bad faith; or
	(b) so as to prevent an award of damages in respect of the act or omission on the grounds that it was unlawful as a result of section 6(1) of the Human Rights Act 1998 (c. 42) (acts of public authorities incompatible with Convention rights)."
	[Amendments Nos. 29 and 30, as amendments to Amendment No. 28, not moved.]
	On Question, Amendment No. 28 agreed to.
	Clause 18 [Power to require documents and information]:

Lord Hodgson of Astley Abbotts: moved Amendment No. 31:
	Page 22, line 24, at end insert—
	"( ) Any information or documents under subsection (3) must relate to the company specified by the Secretary of State under subsection (1)."

Lord Hodgson of Astley Abbotts: My Lords, we now come to investigation powers. The reply that was given by the noble Lord, Lord Sainsbury, to our earlier Amendment No. 91 in Grand Committee was unsatisfactory. He said that as a result of the Secretary of State's power to appoint investigators having to be "in relation to a company",
	"any information or documents requested by the investigators will need to be relevant to the concern which prompted the Secretary of State to appoint investigators".
	Our expert evidence suggests that the problem with that supposed limit is that no one in practice will ever know whether the information or documents being requested from him fall within the permitted scope. That is because the Secretary of State is not required to publish, and, in actual cases, does not publish, the concerns which have prompted the appointment of the investigators, but the reality is that the language of proposed Section 447 contains no limit or control over the information or documents which investigators, once appointed, may request.
	The noble Lord, Lord Sainsbury, gave two examples of cases in which he believed that the proposed amendment would unduly limit the power to obtain information and documents. He said:
	"For example, it might be necessary to investigate a company operating a franchise arrangement which has made false claims about the franchises that it has sold. The investigator will want to be able to require documents and information from franchisees, to discover whether the company's sale forecast or the claims that it is making are correct. We doubt that such information could be said to relate to the company under investigation, though it would clearly be highly relevant to the investigation of the company.
	"Another example might be business plans or objections drawn up before a company was formed, identifying the thinking of the company's promoters. In examples such as these, we were not convinced that a test such as that proposed would be wide enough to give investigators access to all the relevant information".—[Official Report, 22/3/04; GC 251–52.]
	Our legal advice is that each of those cases would fall within the power as information would relate to the relevant company. It seems entirely balanced and justified that, when requiring documents and information from a person, the Secretary of State's power should be limited to information that relates to the company in question. It is otherwise unjustifiably open-ended. I look forward to hearing from the Minister on why the Government believe that the Secretary of State's power should be so unrestricted in those circumstances, given the practical examples of the way in which the system currently operates. I beg to move.

Lord Sainsbury of Turville: My Lords, as we have now moved to the investigations section of the Bill, I think it might be helpful if I briefly set the debate in context.
	Every year, the DTI's Companies Investigation Branch carries out around 350 investigations. The number of companies affected represents less than 0.04 per cent of registered companies, but investigations have uncovered some pretty deplorable practices, as well as some that are simply inept or fall below statutory requirements. The consequences of these practices can have a damaging effect on those who come into contact with them, often inflicting real hardship.
	The restrictions on disclosure of information prevent me from giving noble Lords details of specific investigations, but the categories of misconduct uncovered can include fraudulent trading and illegal pyramid-selling schemes. Noble Lords will be familiar with the kind of thing from descriptions given on the letters pages and in consumer columns in newspapers. It is probably illustrative enough for me to say that in 2002–03, following DTI investigations, 80 companies were wound up by the courts, 17 directors were disqualified, and seven individuals were convicted of offences, receiving penalties including custodial sentences, community punishment orders and fines. That does not include cases reported by DTI to the Serious Fraud Office, the police and other prosecuting authorities.
	Noble Lords will appreciate from those figures that the activities of some companies fall well below the standards that one would expect. It is those companies which will be the prime focus for the DTI's attention—not the 99.9 per cent of companies which are carrying on business in a well run fashion. I am sure the noble Lord will agree with me that it is crucial that we have investigators who can effectively target the more deplorable practices and protect consumers and legitimate businesses.
	The noble Lord's amendment is concerned with the range of documents and information that an investigator will be able to require under new Section 447. As I explained in Grand Committee, new Section 447(1) already ensures that any information or documents requested by investigators will need to be relevant to the concern which prompted the Secretary of State to appoint them. It seems right to us to set the parameters of what may be required by reference to the parameters of the investigation itself. However, the noble Lord, Lord Hodgson, wants to restrict the investigator to being able to require only information or documents which "relate to the company". That leaves considerable room for argument about what that might cover and offers potential for delay by companies and others who are determined to be unco-operative. In addition, we do not believe that this phrase would be wide enough to capture everything that is relevant to an investigation.
	In the modern business environment, few companies operate in isolation and it can be the case that complex trading relationships between different types of organisation are used as a deliberate smokescreen to disguise misconduct. It is vital, therefore, that the investigator can examine the company's relationships with others and we are unconvinced that some of the information sought could always be said to "relate to the company". For example, we can envisage circumstances in which it might be necessary to require information about the functions performed by agents marketing a company's products, or by bodies carrying out administration and banking functions for those agents.
	It may also sometimes be the case that relevant information includes papers that are internal to firms of auditors or lawyers and that are not covered by legal professional privilege. However, I do not see why this should be regarded as unreasonable. Legally privileged material will continue to be protected from disclosure, so I struggle to see why auditors or lawyers should find it difficult to provide information which may assist in uncovering misconduct. I therefore ask the noble Lord to withdraw this amendment.

Lord Hodgson of Astley Abbotts: My Lords, I am disappointed with the Minister's response. Of course, we understand about the deplorable behaviour of certain companies, but that is not the objective behind the amendment, which would narrow the Secretary of State's powers.
	After the examples that the Minister gave in Grand Committee of why the provision was needed, we have now produced arguments and evidence as to why his arguments were not right. I hasten to add that those arguments and evidence have come from legal experts, not from me. It would have been possible to collect all the documentary evidence required to catch the malefactors, even with our amendment included in the Bill.
	I am not at all sure that we are not allowing the Secretary of State to have a shotgun approach. I understand the principle of the rifle, and am quite keen on it. But the provisions give the Secretary of State the potential to spray the bullets around and hope that a target is hit somewhere.
	I should like to read again what the Minister says, but the provision seems to give too much power to investigators. I am not in any way saying that we should not get after the villains and the consumer press to which he referred. I accept all those arguments. I am not sure that we have got the balance quite right but, in the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 19 [Protection in relation to certain disclosures]:

Lord Sainsbury of Turville: moved Amendment No. 32:
	Page 23, line 21, leave out ", (4)"

Lord Sainsbury of Turville: My Lords, it will be remembered that in Grand Committee the noble Lord, Lord Hodgson, raised the question of treatment of documents or information covered by legal professional privilege. I assured him that, although we are replacing Section 447 of the Act, our intention is to preserve, and indeed to expand, the existing principle. This is that neither the Secretary of State nor investigators can use the powers in that section to compel the disclosure of documents which could be withheld in civil proceedings on grounds of legal professional privilege.
	I assure him again now that we are not changing that principle with this technical amendment to Clause 19. We have simply reached the conclusion that new Section 448A(4) has no effect and is technically redundant because of new Section 448A(2)(b). Clause 19 provides immunity from liability for breach of confidence for anyone who, in breach of a contractual or other duty of confidence, provides relevant information to the Secretary of State in specific circumstances. New Section 448A(2)(b) has the effect that this immunity is not conferred where a person discloses information which he or she would be entitled to withhold in an investigation.
	As a person would, in an investigation, be entitled to withhold legally privileged information under new Section 452(1) or (2), it follows that no immunity would be conferred in any event if a person disclosed legally privileged information to the Secretary of State under new Section 448A. In other words, legal professional privilege is already fully protected under new Section 448A(2)(b), and subsection (4) achieves nothing. Subsection (4) should therefore be deleted, as should the reference to it in subsection (2)(e). It is a barnacle that we are removing. I beg to move.

On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendment No. 33:
	Page 23, leave out lines 24 to 30.
	On Question, amendment agreed to.
	Clause 20 [Power to enter and remain on premises]:

Lord Hodgson of Astley Abbotts: moved Amendment No. 34:
	Page 24, line 7, leave out "thinks" and insert "reasonably believes"

Lord Hodgson of Astley Abbotts: My Lords, the amendment takes us back to the exercise of power by investigators. It relates to the power to enter and remain on premises, which is quite draconian. Amendments Nos. 34 and 37 would replace the expression "thinks" with "reasonably believes". That is to say, an inspector or investigator may act if,
	"he thinks that to do so will materially assist him".
	He may also remain on premises if he thinks it necessary. We want to replace the word "thinks" with "reasonably believes".
	In Grand Committee, the Minister commented that the power to require access would not be available if,
	"no reasonable person in the inspector's or investigator's position could think that to require access to the premises in question will advance the investigation".—[Official Report, 22/03/04; col. GC 258.]
	He seemed to be suggesting, very politely, that the amendment would be pointless, as "thinks" means the same as "reasonably believes".
	Our legal advice is, with the greatest possible respect, that the Minister is wrong in that conclusion. It can be doubted whether the two expressions have the same meaning. It is one thing to show that no reasonable person could believe access to be necessary; it is a different thing to show that any reasonable person would believe access to be necessary.
	The existing formulation of words using the expression "thinks" would permit access provided that some reasonable person could think access to be necessary, possibly even that one person could think access to be necessary. The amended formulation that we would like to see inserted in the Bill would permit the court to test the requirement for access by a higher test, considering not only whether it was wholly unreasonable to require access but of positively having to consider whether the requirement was reasonable. We believe that this further test is necessary, as the power to enter and remain on an individual's premises is sufficiently intrusive to merit the need for a fuller test to gain access. I beg to move.

Lord Sainsbury of Turville: My Lords, these amendments concern the power to enter and remain on premises and the basis on which an inspector or investigator may choose to use the power. We have used the word "thinks" so that an inspector or investigator may act if he thinks that to do so will materially assist him in the exercise of his functions. The noble Lord, Lord Hodgson, prefers the phrase "reasonably believes".
	We see no difference in substance between "thinks" and "reasonably believes" and see no advantage to the phrase "reasonably believes". Using the word "thinks" does not give an investigator or inspector carte blanche in using the power. He will be able to act only if a reasonable person would share his view that it would materially assist the investigation. He must have reasonable grounds for what he thinks. Moreover, he will have to have been specifically authorised to use the power by the Secretary of State. Having exercised the power to enter premises, the investigator or inspector will be able to remain there only for as long as a reasonable person would consider necessary. He must have reasonable grounds for his view about how long the necessary period is. In this context, I do not see what additional protection would be afforded to the occupier by using the phrase "reasonably believes" as opposed to "thinks".
	I hope noble Lords will agree that we should prefer drafting which uses plain language and avoids unnecessary words. We are being consistent on this, we are using one word instead of two throughout and noble Lords will have to live with that. In my view, the use of the word "thinks" is very much to be preferred to the use of "reasonably believes". There are a number of potential variations on the latter; for example, "believes on reasonable grounds", "has reasonable grounds to believe" or "reasonably considers". Effectively they all mean the same thing and "thinks" encapsulates them all. I ask the noble Lord to withdraw the amendment.

Lord Hodgson of Astley Abbotts: My Lords, I think that I am right in saying that the previous formulation of words in the Companies Act used "reasonably believes" in respect of these matters. We have shifted from what was "reasonably believes" to "thinks". I do not have the sections of the Act in front of me, but I think that that is the case. I believe that the phrase "reasonably believes" is hallowed by past use.
	I think that this is a serious matter. It is all very well us calmly standing here on a late afternoon in July but we are talking about the power to enter and remain on premises. This is not an issue to be passed over lightly. The external advice that we have received is that we ought to test the requirement for access by a higher test—a test not only of whether it is wholly unreasonable to require access but positively of having to consider whether the requirement was reasonable. We have had one crack at this part of the Bill in the earlier set of amendments that we withdrew. We shall come in a minute to another set of amendments about hours. I wish to test the opinion of the House on this issue.

On Question, Whether the said amendment (No. 34) shall be agreed to?
	Their Lordships divided: Contents, 77; Not-Contents, 160.

Resolved in the negative, and amendment disagreed to accordingly.

Lord Hodgson of Astley Abbotts: moved Amendment No. 35:
	Page 24, line 10, after "premises" insert "during normal office hours"

Lord Hodgson of Astley Abbotts: My Lords, in this group of amendments—Amendments Nos. 35, 36, 38 and 39—we seek further to restrict the investigators' powers. We wish to provide defined limits on the power to enter and remain on premises that is given to inspectors and investigators. It is plain that the Government wish any limits on power to remain as vague as possible, which will doubtless have the effect that in practice there are no limits and any challenge to the exercise of the power will be difficult and uncertain.
	In Committee, that was indeed the thrust of the argument of the noble Lord, Lord Sainsbury—that the limits were likely to restrict the effectiveness of the provisions. Curiously, it was also said that to impose a limit could be taken to show that it could be perfectly reasonable for the power to be exercised to the full extent of the limit, even when that was not really necessary.
	The limits that we propose are intended to do exactly what limits are designed to do: to put a cap on the hours spent by an inspector or an investigator on an individual's premises. The limits are not intended to encourage inspectors or investigators to use the maximum time given in the amendments. I would argue that some measure of certainty should be introduced and that the proposed limits are reasonable and not likely to render or undermine the power of the investigator.
	The noble Lord, Lord Sainsbury, asserted in Committee that Clause 20(2) makes redundant our amendments—Amendments Nos. 35 and 36—which are aimed to limit investigative powers to within "normal office hours" as this subsection provides that an inspector or investigator may gain access but only at "reasonable times". Our amendments limit this to "during normal office hours". The Minister questioned who would define "normal office hours" and suggested that certain individuals might change their office hours to frustrate an investigation. If the Minister is correct, surely the same individuals could also question the definition of what is a reasonable time.
	I believe that both the present drafting and possibly our amendments are susceptible to further refinement, but our amendment offers an alternative that is more focused in giving more definable boundaries.
	On Amendment No. 38, if the Minister believes that it is unlikely that there will be a need to gain access for more than a few hours or days—let alone weeks or months, as he said in Committee on 22 March, at col. GC 261 of the Official Report—we do not see how he can object to the inclusion of a precautionary limit of one month, particularly since it can be extended with the permission of the Secretary of State if it is felt to be desirable.
	The objective of Amendment No. 39 is to prevent the power being exercisable in relation to domestic premises. No doubt it is a matter of policy whether it is appropriate to empower investigators to enter into and remain within someone's home without their having had to obtain a warrant or to justify to any authority the need to exercise such a power. However, the proposed provision is to be contrasted with the existing Section 448 of the Companies Act, which permits the justice of the peace to issue a search warrant when satisfied on oath about certain matters. It has not really been explained why it is appropriate for such a safeguard to be dispensed with at this point.
	To conclude, we see the introduction of limits as entirely justifiable in this context and fail to see how they could obstruct or frustrate an investigation. They merely draw realistic boundaries around an area that is otherwise ill-defined and could lead to an abuse and an infringement on a person's liberty. I beg to move.

Lord Sainsbury of Turville: My Lords, this group contains a number of amendments which in different ways seek to limit the scope of the powers in new Section 453A and, I would argue, restrict the likely effectiveness of the provisions.
	Amendments Nos. 35 and 36 seek to limit the powers in new Section 453A so that they can be exercised only during "normal office hours". This form of words would introduce uncertainty into the new section. Whose normal office hours are we talking about? The usual demands of a company's trading will determine its hours of business. While many companies may trade within the hours of 9 a.m. and 5.30 p.m., a corner shop might be open from 7 a.m. until 10 p.m. or a wine investment company—which seeks to reach people at home—might trade during weekday evenings and even at weekends. If the phrase "normal office hours" is interpreted as meaning, say, 9 to 5, it will not be of much assistance to the investigator or inspector if the company under investigation does not trade during those hours.
	If the noble Lord had in mind that the powers should be exercisable only during the normal business hours of the company under investigation, then I do not think that that would work either. Some companies which are the subject of DTI investigations do not have a regular pattern of trading which identifies "normal office hours". In addition, if a company does have normal office hours, how are the investigators to know what they are? Do they have to take what the company tells them on trust? In any event, it is the company itself which determines what its normal hours of business are, and some companies might vary their hours precisely in order to frustrate an investigation. So it is highly undesirable to attempt to limit the powers in this way.
	I know from the debate in Grand Committee that the noble Lord is concerned that inspectors or investigators may be tempted to use this new power to make dawn raids on business premises, or to demand access at night. However, I can reassure him that the reasonableness test contained in new Section 453A(2) will not make it possible for investigators or inspectors to require access to premises at any time which is not reasonable.
	Amendment No. 38 seeks to control the amount of time that an inspector or investigator can spend on premises to which he or she has gained entry under new Section 453A. If I understand it correctly, the intention is to provide that—when taken in conjunction with Amendment No. 36—an inspector or investigator has only one month during which he may use the power unless the Secretary of State authorises an extension.
	We believe that this amendment would undesirably fetter the actions of the inspector or investigator. Inspectors or investigators may not be in active contact with the company for a period of days and weeks as they gather information from others. It is unreasonable to suppose that they will be able to complete all aspects of the investigation which need access to premises inside one month.
	In addition, we see no reason to doubt the professionalism of the inspector and investigator to carry out their statutory functions observing the safeguards within new Section 453A. So, an inspector or investigator may need to visit business premises on several occasions during the course of an investigation. However, in most circumstances the duration of each visit will be a matter of hours. The company is protected because the inspector or investigator will need to have the necessary grounds to require entry on each occasion.
	In addition, I have already spoken about the reasonable times test. This safeguard also qualifies the length of time spent on business premises. The first line of subsection (2)—line 9 on page 24—qualifies both paragraphs (a) and (b). So, just as an inspector or an investigator can seek to gain access only at a reasonable time, the time spent on business premises can continue only while it is reasonable for the company or other occupier to have him or her there. The reasonable times test is a real safeguard, but it also allows each case to be judged on its particular circumstances.
	I turn finally to Amendment No. 39. This seeks to exclude people's homes from the definition of "relevant premises" in new Section 453A. I can understand your Lordships' natural concern about the level of privacy that should be enjoyed by an individual in their home. However, anyone who conducts a company's business from premises that are also, in whole or in part, used as living accommodation has already decided to forfeit a degree of that privacy. I should stress that a director's home address is not automatically "relevant premises" and will be only if it appears to be used for company business.
	A director must expect that many individuals have an interest in visiting a company at the premises used for the purposes of the company's business. Such visitors might include customers, creditors, bailiffs, Inland Revenue and Customs and Excise officers and, much more unusually, DTI investigators or inspectors. I say "unusually" because, of course, the number of companies investigated by DTI is a tiny proportion of the total registered at Companies House. However, some of the company-based scams that the DTI investigates will inevitably be carried out from domestic premises. If the noble Lord is not aware that that is a feature of our society, he is living a very cocooned life. Some of the worst scams take place on domestic premises.
	As the new provisions stand, an inspector or investigator will be able to require access to any premises that he believes are used for the business of the company under investigation. He will not be able to use force to enter such premises, but they may include premises that are used both for business and residential purposes. It is important for an inspector or an investigator to have access to premises used for the company's business. It speeds up the process of acquiring relevant documents and information, helps to avoid obstruction and enables the inspectors or investigators to get a clear and balanced picture of the company's activities. This clearly helps the effective uncovering of fraud and malpractice and just as importantly accelerates the process of discontinuing inquiries, where appropriate.
	In the light of what I have said, I ask the noble Lord not to press Amendments Nos. 35, 36, 38 and 39.

Lord Hodgson of Astley Abbotts: My Lords, I assure the Minister that I do not live in a cocoon. I am under no illusions regarding what human ingenuity can achieve in pursuit of all kinds of devious schemes. We seek not to offer shelter to those who have malice aforethought or malice afoot, but to ensure that we get the balance right; namely, that the position of someone in their home or office should be protected to some extent. We do not consider that the Bill has the balance right; we believe that it pushes it too far towards the investigator. We debated this matter at length in Grand Committee. We have just divided the House on another aspect of the matter and I do not propose to do so again. I do not think that the Government have the balance right. I am disappointed that they have not introduced a further safeguard to improve the balance. However, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendments Nos. 36 to 39 not moved.]

Lord Hodgson of Astley Abbotts: moved Amendment No. 40:
	After Clause 22, insert the following new clause—
	""ASSISTING TRANSACTIONS EFFECTED BY COMPANIES WITH POSITIVE DISTRIBUTABLE RESERVES"
	In section 263 of the Companies Act 1985 (c. 6) (certain distributions prohibited), after subsection (5) insert—
	"(6) Where—
	(a) a company has any profits out of which it could lawfully make a distribution (within the meaning of section 263(2)), and
	(b) the company makes a distribution which involves the sale, transfer or other disposition of a non-cash asset,
	then, for the purpose of determining the amount of such distribution no account is to be taken of any amount in excess of the amount at which that asset is stated in the accounts relevant for the purposes of the distribution in accordance with sections 270 to 275.
	(7) Subsection (6) of this section shall be deemed always to have had effect.""

Lord Hodgson of Astley Abbotts: My Lords, with this amendment we seek to insert a new clause. It has relevance to what we have been discussing: auditing, directors' duties, protection of shareholders—all these matters are the central thrust of the Government's strategy.
	The amendment was brought to our attention by the Law Society which I believe lobbied for its statutory consideration over a number of years, with support from the CBI and the Institute of Chartered Accountants.
	The amendment was initially brought forward in light of the difficulties caused by the Aveling Barford Limited v Perion Limited and Others case in 1989. The case determined that where a company had no distributable reserves and sold an asset at an undervalue, the sale was ultra vires and void, being an unlawful reduction of capital. Furthermore, it was incapable of ratification or approval by shareholders. However, the case did not decide anything on the situation where a company selling an asset at an undervalue has positive distributable reserves. As a result a significant body of legal opinion now considers that, in certain circumstances, such a sale is a distribution for the purposes of Section 263 of the Companies Act 1985 even where the asset concerned is sold for an amount equal to its book value where this is less than its market value.
	Companies in a group will often transfer assets intra-group for a variety of business, administrative or tax reasons. Again, for a variety of business, administrative or tax reasons, these transactions are often done by reference to book value, rather than by reference to actual market value, which the directors may not know or may not easily be able to calculate. The result of Aveling Barford and the debate that it has engendered have cast doubt on the validity of those transactions.
	It is accepted that where the company has no distributable reserves, such transfers must be made at market value. However, in the vast majority of cases the transferor has positive distributable reserves, and even in those cases there is now considerable uncertainty as to transactions which, while not questionable as to propriety as appears to have been the case in Aveling Barford, may none the less have some element of undervalue.
	Legal opinion is believed to favour the view that the case should have no relevance to a company with positive distributable reserves—as in Aveling Barford—but that Companies Act dividend restrictions ought to require one to look at book value rather than at market value where an asset is transferred by a company, resulting in a nil distribution where a sale is made at no less than book value. Because of the uncertainty caused by Aveling Barford and the subsequent debate, transactions of that nature are commonly carried out in a more complicated way than previously—often involving revaluation of the asset concerned and then its sale or distribution, relying on Section 276—or have not proceeded at all. In some cases, the auditors have raised questions in the course of their annual audit about intra-group transactions which leave the companies concerned in a difficult position.
	A very simple legislative amendment to Section 263 of the Companies Act 1985 would largely remove the uncertainty in relation to transactions effected by companies with positive distributable reserves. However, creditors and minority shareholders would continue to be protected against improper transactions. Our amendment seeks to amend Section 263 to the effect that, where a company has positive distributable reserves, the amount of any distribution comprised in the sale, transfer or other disposition of a non-cash asset is to be determined solely by reference to the amount at which the asset is stated in the company's books. That would mean that a sale at book value amounted to a nil distribution. The amendment would be consistent with the intention of Part VIII of the Act.
	It is believed that, at least until Aveling Barford prompted more detailed analysis of undervalue sales, companies with positive distributable reserves making intra-group transfers almost invariably did so at book value. Transactions have taken place involving billions of pounds on that basis. Until Aveling Barford, there was no suggestion that such a transaction was improper, always provided that the directors were acting in good faith and not for any improper purpose.
	The proposed clarification would assist transactions to take place without time-consuming and costly debate and, on some occasions, the possibility of transactions being abandoned due to the uncertainties. One example is that, on acquisitions of assets, trades or companies, purchasers will often consider it desirable to review past transactions to ensure that no void Aveling Barford-type transfers have been made. To the extent that they can ignore considerations of market value on past transfers in companies with positive distributable reserves, that would be a substantial simplification. Another example is that, where doubts exist at present, complex, costly and time-consuming negotiations take place concerning, inter alia, indemnification against possible contingent liabilities.
	The amendment does no more than recognise what is implicit in the statutory scheme for distribution in Part VIII of the Companies Act—that all calculations should be done by reference to the company's accounts. Any suggestion that amounts in excess of book value should be taken into account when applying the statutory distribution rules appears to be confusing, and not intended by the legislation. The common-law rule relied on in Aveling Barford should apply only to a company with no distributable reserves. Such a company could not, in any event, make a distribution without breaching Part VIII.
	No attempt has been made, nor should be sought to be made, to change the Aveling Barford case—where a company does not have positive distributable reserves. The amendment is drafted in such a way as to not affect the common-law rules. Those rules, including the rules on what constitutes a distribution, will continue to be covered by Section 281 of the Companies Act 1985. The amendment would also avoid triggering concerns over disadvantaged creditors. Where a company has positive distributable reserves, it would be open to it to make a sale at market value, followed by a distribution of the profit generated. That would leave the company in the same position, so far as creditors were concerned, as it would be were the amendment to be made.
	In any event, the Insolvency Act 1986 has protections for creditors covering undervalue transactions and preferences. In all cases, the Aveling Barford case will remain the law where companies have negative distributable reserves. Nor are shareholders disadvantaged, because where a company has negative distributable reserves the amendment has no effect. Where a company has positive distributable reserves the directors will, of course, continue to be subject to their normal duty to act in good faith in the company's interests.
	This is a simple standalone amendment which I hope the noble Lord, Lord Sainsbury, is not about to reject on the basis that the matter is being considered in the wider context of the Company Law Review. The point has significant cost and time implications for companies and for British business, and the amendment has been long overdue. Business should not be kept waiting any longer for the Company Law Review, for which we still do not have a date. I beg to move.

Lord Evans of Temple Guiting: My Lords, my noble friend Lord Sainsbury will not reject this amendment, but I will on his behalf. This new clause takes us into one of the most arid and complex areas of company law—what are known as capital maintenance and distribution rules.
	The noble Lord, Lord Hodgson, has eloquently described the need for this amendment. I can reassure him that the Government fully accept the desirability— I choose my words carefully—of clarifying the law in this area. We agree that companies which are in a position to pay a dividend should also be able to transfer a non-cash asset—for example, a building at its value in the company's accounts—without needing to have that asset revalued. In taking that view, we are following the recommendations of the Company Law Review.
	As my noble friend made clear in the debate at Second Reading, we are working hard on a Bill to implement the recommendations with the aim of removing unnecessary regulation—what the noble Lord has referred to previously as barnacles—and simplifying and making the law more flexible for present and future use. That is a large and complex exercise, which involves putting together all the pieces of the jigsaw—to borrow another metaphor that noble Lords have previously used.
	The Government's view is that this reform should be part of that main companies Bill. It belongs alongside other envisaged reforms on capital maintenance and distributions, including abolition of the restrictions on financial assistance by private companies. We are determined to take forward this work, which can be quite detailed and technical, on a collaborative basis. I offer my thanks to all those, including from the legal and accountancy professions, who are continuing to help in taking forward the ideas of the Company Law Review in this area.
	I appreciate that not legislating now may cause some disappointment. But equally, we are talking about an amendment to make clear what many believe the law already to be. We are not therefore persuaded of the case for legislating now rather than later, in the more appropriate context. We have sought to keep this Bill tightly focused, as its title suggests.

Noble Lords: Oh!

Lord Evans of Temple Guiting: My Lords, as that got two laughs, I will say that again. We have sought to keep this Bill tightly focused, as its title suggests. It is designed chiefly to implement recommendations from the post-Enron reviews and the Strategy Unit review, Private Action, Public Benefit, regarding community interest companies, along with some closely related measures, such as improving the company investigations regime. Wider reforms to company law, such as this one, need to be taken forward together and the Government are committed to doing that as soon as possible in a comprehensive Bill.
	I hope that I have assuaged some of the concerns of the noble Lord and that he will feel able to withdraw his amendment.

Lord Hodgson of Astley Abbotts: My Lords, at least the Minister was able to read his brief more or less with a straight face. I understand that the matter is complex. However, he began by saying that clarity was desirable and talking about removing a barnacle, with which we agree, but then fell back on the company law review, for which we have no date. It is disappointing that the Government expressed desirable principles about clarity and removing the regulatory burden but then fell back on something that could, as I understand it, be three years away.
	I accept that this is a stand-alone amendment and I am not going to push it any further tonight, but there will be great disappointment in industry and in the professions that the Government are not able to deal with the issue of Aveling Barford. I hear what the Minister said, but I am disappointed. He has not assuaged me on this occasion and to call the Bill "focused" is the final slap across the face. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Schedule 2 [Minor and consequential amendments relating to Part 1]:

Lord Evans of Temple Guiting: moved Amendment No. 41:
	Page 51, line 9, leave out ", 47(3)(c) and 48(3)" and insert "and 47(3)(c)"
	On Question, amendment agreed to.

Lord Evans of Temple Guiting: moved Amendment No. 42:
	Page 51, line 11, at end insert—
	:TITLE3:"Companies (Northern Ireland) Order 1990 (S.I. 1990/593(N.I. 5))
	3A In the Companies (Northern Ireland) Order 1990, omit Article 49 and Schedule 14 (supervisory and qualifying bodies: restrictive practices)."

Lord Evans of Temple Guiting: My Lords, in moving this amendment I shall also speak to Amendments Nos. 90, 91 and 92. This group of amendments deals with the competition-related provisions in the Companies (Northern Ireland) Order 1990 relating to statutory audit. It achieves for Northern Ireland an amendment already made in relation to company law elsewhere in the United Kingdom. Currently, the order excludes the application of the Chapter 1 prohibition in the Competition Act 1998 to certain agreements relating to the constitution and rules of recognised, supervisory or qualifying accountancy bodies, but requires the Secretary of State to seek competition advice from the Office of Fair Trading when recognising professional accountancy auditors.
	EC regulation 1/2003, covering modernisation of EC competition law, came into force on 1 May. It gives Article 81 of the EC treaty direct effect in the UK and the relevant provisions to make that work were put in place by SI 2004/1261, which was discussed in this House on 28 April. Given the potential application of Article 81, to avoid inconsistency between EC and domestic competition law arising as a result, it is sensible to repeal the special provisions, leaving general principles of competition law to apply in such cases.
	The statutory instrument that I mentioned has therefore repealed the previous exclusion and special scrutiny regime in relation to Great Britain using powers in Section 209 of the Enterprise Act 2002. However, owing to an omission in the enabling powers for that instrument, we did not have sufficient vires to make the equivalent change to northern Irish law by secondary legislation, which is why we propose to make this change in the Bill. I beg to move.

On Question, amendment agreed to.

Lord Evans of Temple Guiting: moved Amendments Nos. 43 and 44:
	Page 51, line 29, leave out "234(7)" and insert "234ZA(6)"
	Page 51, line 32, leave out "234(2A)" and insert "234ZA(2)"
	On Question, amendments agreed to.
	Clause 23 [Community interest companies]:

Baroness Pitkeathley: My Lords, I should tell your Lordships that if Amendment No. 45 is agreed to I cannot call Amendment No. 46 by reason of pre-emption.

Lord Phillips of Sudbury: moved Amendment No. 45:
	Page 27, line 3, leave out from "company" to end of line 7 and insert "may also be a charity"

Lord Phillips of Sudbury: My Lords, the amendment is also tabled in the name of my noble friend Lord Sharman and the noble Lord, Lord Glentoran. I offer no apology for returning to this issue because there is a continuing belief on this side of the House that the amendment will improve the Bill, not make it worse. We have discussed these points at previous stages and I do not propose to speak at length tonight, although I must go over the ground to some extent.
	The law of charity has been distinguished by being a function of purpose and not form or format. Although there is an exception which the noble Lord, Lord Sainsbury, mentioned at the previous stage of the Bill, to do with quasi-governmental bodies, this would be the first move away from that excellent principle. We should not go down that slippery slope.
	The simple fact is that the law of charity has always given charities maximum choice as to the form in which they want to carry on their good works. Most of the objections that the Minister erected against the amendment hitherto boil down to his view that it will not be of much use to charities. All I can say to that is that since this became an issue a great many charities have made representations that they would like the opportunity to register as a community interest company, as well as a charity. The argument has been made that that will mean more regulation for them, but that is for them to decide. It may well be that not a great many charities will avail themselves of the CIC form, but, I repeat, that is for them to decide.
	The Minister made the point that we are going to have the charitable incorporated organisation under the draft charities Bill, which is likely to be enacted, and I am sure that we will get the new corporate form, which will be useful. However, it is designed specifically for small charities that want a simple framework. Although many will avail themselves of the form, other charities that are engaged in larger activities will want to utilise it above all others.
	The Government talked about confusion, but I have to say that the confusion argument runs the other way. What could be more confusing than for the Bill to say:
	"A community interest company established for charitable purposes . . . is to be treated as not being a charity"?
	That is bizarre, especially given that a CIC that is established for charitable purposes can say publicly that it has been established for charitable purposes, but then it will not be able to be a charity. We see no point in that, or need for it.
	Although, as I emphasise, I do not expect a great many charities to want to use the CIC form, a few will. They might be quite high-profile charities and we believe that they will add strength, substance and purpose to this part of the Bill, which is a useful addition to the whole social enterprise sector. I reject wholly the notion that it will cause problems within the sector because any charity that avails itself of CIC status will be a social enterprise charity. I know that the Social Enterprise Coalition is split on the issue and I have received a communication from it recently that says that it has mixed views and does not actively favour amending the Bill as I am now proposing. None the less, as I emphasised, I do not believe that there is any likelihood of confusion. It was not one of the highlighted consultation questions to which the Government sought specific answers.
	The Minister said previously that the CIC is not designed for use by charities, but virtually no other specific form is designed for charities. The company limited by guarantee is not designed for charities, nor is the company limited by share. In fact they were designed more for commercial private enterprise organisations, but they serve charities extremely well and there is no confusion.
	Similarly, it will be up to charities to make up their own minds about the question of overlapping the regulation. However, it is certainly the case that, if the amendment is accepted, a whole chunk of the Bill will fall away and all the amazingly complicated regulations in it which allow a CIC to convert to a charity, and vice versa, will also drop away. Therefore, I repeat that the confusion lies in the other direction.
	On 25 March, the noble Lord, Lord Sainsbury, said that allowing charities to be CICs,
	"could adversely affect the value of the CIC to [the social enterprise sector]".—[Official Report, 25/3/04; col. GC 322.]
	I do not see that there is a case for saying that, and I have to disagree. I believe that charitable CICs will enhance the standing and utility of this new animal—the CIC.
	I want to add to what the noble Lord, Lord Glentoran, said at the previous stage of the Bill about confusion, and I emphasise the point about the bizarre position under Clause 23(3). As I said, Amendment No. 45 would mean that large parts of the Bill fall away, and that must be welcomed by all. Therefore, for all those reasons, I urge the Government to allow the amendment through. I beg to move.

Baroness Thornton: My Lords, I declare my interests as the unpaid chair of the Coalition of Social Enterprise and a Labour member of the Co-op. I hate to take a different view from that of the noble Lord, Lord Phillips of Sudbury, because he has such a huge reputation and knowledge of and standing in the legal and charitable sectors, but I disagree with him about the amendment.
	I do so partly because I am concerned that we are in danger of creating exactly the situation that we sought to avoid throughout the consultation that took place before the Bill was presented to Parliament—that is, we did not want to make the CIC complicated. The original intention of the Bill was to create a simple legal entity with light-touch regulation. At present, I cannot see how the amendment does anything other than turn that objective on its head. Speaking as chair of the Coalition of Social Enterprise and having been involved in the discussions, I can say that such an objective has been absolutely at the heart of what we have been seeking to do.
	I apologise to the noble Lord, Lord Phillips, if I gave the impression that the Coalition of Social Enterprise was in favour of this proposal. As he accurately said, we have a very broad membership and, when we conducted the consultation on the Bill among those in the coalition, it transpired that one or two organisations felt strongly at either end of the debate. On balance, they were probably driven by the need for the legal entity to be as simple and uncomplicated as possible, and that probably led the majority to believe that it was not a good idea. In our evidence to government we were silent on the coalition's point of view because we did not want to give an erroneous account of it.
	Perhaps I may now express my own views on this matter. I do not believe that it would be helpful if the amendment were passed. Indeed, I fear that we would throw the whole future of the branding of the community interest company into question. A secondary reason for having this new entity, which stands between the IPS as a full legal entity and a charitable company, is that it would provide a firm, clear brand for a social enterprise which would make it a more coherent entity when it went to the bank manager or funding organisation or whatever. I should be reluctant to do anything which jeopardised that.
	I was struck by the letter from the Charity Commission about this part of the Bill. I found its thinking on it very helpful. It spoke at length about the regulatory regime to which the CIC would be subject. As I said, I fear that, were charitable CICs to exist, one would find that the regulatory regime which we shall be addressing would be—

Lord Phillips of Sudbury: My Lords, I am most grateful to the noble Baroness for giving way. Wearing her hat as chair of the coalition, does she not think that it is extremely hard on a social enterprise organisation which satisfies the community interest test not to be allowed to use the CIC label simply because it is also a charity?

Baroness Thornton: My Lords, I shall come to that point. When we were discussing this matter, we knew that the charities Bill was coming down the track and that it would address issues concerning charities that trade. That is a very valid point. We have been very focused. It is absolutely true that the community interest company should be simple and pure and that it should stick to this somewhat limited area. That should not mean that charities which want to trade should not have their issues addressed; it should mean that we create something new and fresh with light-touch regulation, and that is what this proposal would achieve.
	In conclusion, I understand that the noble Lord, Lord Phillips, is seeking a permissive regime but I do not believe that the amendment would achieve that. I ask him not to proceed along these lines—at least without having further discussions with the sector. I hope that that is what he will do.

Lord Glentoran: My Lords, I have followed this issue with the noble Lord, Lord Phillips, since the commencement of the Bill. I rise again to support his amendment. Before I begin my remarks, perhaps I may take up one or two of the noble Baroness's points which concern me.
	The charities Bill is down the track, but it has been there for a very long time. I made the point very strongly to the Government that they had all their orders in the wrong place and their priorities the wrong way round, as usual. I pointed out that the wrong Bill was coming through first. If they had passed the charities Bill first and we all knew where we were on a matter of significant and serious importance—I am not saying that CICs are not important but the subject of that Bill is more so—we probably would not be having this debate now. Having said that, I do not agree with the noble Baroness that this Bill is a simple and legal entity. It is not. We worked terribly hard throughout the whole Grand Committee stage, and we worked together with the Minister and his officials. I think that the Bill is simpler than it was, but, as I have said previously, it is still a long way from being a simple document that you can pick off the shelf and know where you are.
	From what the noble Baroness said, I sense that once again she and, indeed, the Government want to remove freedom of choice from the people of this nation. The Government do not wish people to have a choice. If I am running a charity and I choose to turn my charitable company into a CIC, why should I not do so? If those running a CIC in the community interest wish to turn it into a charity, why should they not do so? Why do we have to legislate against that? I do not see the sense or the benefits in that. I think that a CIC should be given the opportunity to register as a charity.
	In Grand Committee, the noble Lord, Lord Sainsbury, claimed that it was highly unlikely that a company would want to double the amount of regulation with which it had to deal as a CIC and a charity. It is not up to us in Parliament to decide that; it is up to those who run the company. It is a matter of choice. Yet we return again and again to the fact that a company set up for charitable purposes is to be denied the opportunity of having charitable status if it wishes to become a CIC. Government Amendment No. 46 shows the farcical nature of the point. The Bill would read that a CIC set up for charitable purposes is to be treated as not being so established and is not a charity. Where is the sense in that? I suggest there is none.
	On the other hand, I have read the letter sent by the Charity Commission and I appreciate that we should take its arguments for retaining a clear-cut separation between CICs and charities into account. I found one of its arguments, in particular, quite persuasive. The Charity Commission commented in a letter:
	"It is not always clear-cut whether a particular form of object is charitable or not. That is, perhaps, particularly so in the area of social enterprise, where many CICs are likely to operate, and where ideas as to what should, and what should not, be regarded as charitable are evolving. Our understanding is that there is a demand for a form of company where the promoters can be certain that, notwithstanding the public interest element, the company will not fall within the framework of charity regulation".
	To some extent I sympathise with those comments, but I still argue that those CICs that are sure of the charitable nature of their objectives should be given the option of charitable status, even though they know that should those charitable purposes change and become what might appear, objectively, to be non-charitable, they would have the administrative complication of relinquishing their charitable status.
	On re-reading the debate in Committee in Hansard and listening to the concerns of the Charity Commission, I still come down on the side of the noble Lord, Lord Phillips. This is a complex issue and to some extent we are taking a leap in the dark with the new CIC form. I do not believe that anyone knows quite where it will go, who will operate it and in what areas it will operate. I certainly do not. Yet for precisely that reason, I believe that we should leave the matter as open to choice and as variable as possible. That includes allowing an option of charitable status for those who wish it.
	We do not need to nanny companies that are well managed in the charitable sector or the social sector. They have managements that should be allowed, and given, the choice. They are grown up people who know what their businesses are about and they should be free to choose under what regulations they wish to operate and how they wish to do that. I support the amendment.

Lord Graham of Edmonton: My Lords, I rise late in the debate on the Bill, but I have followed it with interest. I declare an interest as a consultant of the Co-operative Group, in a general co-operative sense. What I shall say is based upon conversations that I have had with my very good friend Lady Thornton, who has demonstrated today, as previously, her deep grasp of the social enterprise sector. That is acknowledged. I am grateful to her for what she has said.
	When I looked at the raison d'être for the Bill—I am prepared to be advised or instructed—I was struck that before the Bill was drafted and presented there was wide consultation on what one might call the stakeholders, arising out of which the precise nature of the clauses—the import and the effect of the clauses—was broadly agreed. The last thing I want to say is that it is not possible for a Member of this House to conclude that a Bill can be improved; that is the idea of this amendment. But when I look at the effect of the amendment, I am not at all certain that it will achieve the objective.
	I believe that there is no one in the House who would not subscribe to the view that charities, large and small, are good organisations. I do not believe that there is any noble Lord in the Chamber—perhaps a dozen or 15 Members—who is not associated with a charity of some kind. Members give time and money to charities. However, I consider that the impact of the amendment and the administrative burden would fall on the shoulders of officers who are not full professionals. They would be subject to the regulatory advice and oversight, not only of the regulator, but also of the Charity Commission and the Friendly and Industrial and Provident Societies Act. As a co-operator, I am well aware of the import of that Act and the amendments that we have made to it. These matters will emerge after proper discussion and consultation.
	Considering why the Government have brought forward the Bill, no one in the debate disagrees with the objective but, besides tidying up and improving, we are concerned about having due regard to the impact and the consequences of the amendments that we move.
	I was interested to hear what the noble Lord, Lord Phillips, said—I always respect his views on these matters—about receiving a number of representations from individual charities saying that they would like the option of the amendment that he proposes. Of course, there are thousands of charities and he will have received representations from some people who have picked up the point. But we should come to a conclusion on a proper basis about whether this is right or wrong.
	My noble friend referred to a charities Bill—I can remember the previous one as I have been here long enough and I have a very good memory. There is no doubt that it will receive major scrutiny, not only by this House, but by everyone outside. In my view, the House is better equipped now than it was when the first Charities Bill went through, as we have people in the House who understand the mores of charities.
	I believe that the amendment is unnecessary and unwise. It will have an effect on the comparison between the CICs that are registered as charities and those that are not. If people decide to go down the route of registering an organisation as a charity and there are advantages to it, ipso facto there will be disadvantages to others. I am concerned—I am not confused—that we must be sure that when we pass legislation it has the best chance of achieving its objectives. Quite frankly, I am not persuaded. I very much hope that the noble Lord, Lord Phillips, will recognise that we have had a good debate, that he has made a good case, but that there are other opportunities to pursue this point. Therefore, I hope that he will not press the amendment.

Lord Sainsbury of Turville: My Lords, when the noble Lord, Lord Phillips, originally made this point to me I started off being very sympathetic to his viewpoint. A failing of not being a lawyer is that when people talk about "legal purity" I am attracted to the argument. The more the debate has gone on, the more unreal I believe it is and quite unnecessary. There is bound to be some confusion. If one starts to say that there are two organisational forms, and one can have a third form that combines the two, confusion will be caused.
	The second argument quite simply is that the amendment is unnecessary. I know that the noble Lord, Lord Phillips, feels that it would be of great benefit to charities; but it is difficult to see what benefit would be derived from it. His words on the matter deviate between saying it is a great boon and saying that no one will use it. In Committee he said, first, that,
	"If the CIC was the third option within the Companies Act framework, we would advise our clients—I have talked to many solicitors and to the Charity Law Association, which has the same view—to use the CIC format".
	Subsequently, he said,
	"I accept that the number of charities wanting to adopt the CIC status may well be relatively small".—[Official Report, 25/3/04; cols. GC 318 and GC 324.]
	There is only one possible conclusion from that, that the noble Lord does not have many customers who come to him for advice.

Lord Phillips of Sudbury: My Lords, I thank the Minister for giving way. There speaks a retailer. I was not thinking of my customers. I am gratified that the Minister has studied my pronouncements so carefully. In the second quote, I was saying that the number of charities that will satisfy the community interest test will be limited. That is the point. Those who do will choose the CIC format rather than the company limited by guarantee or the company limited by shares. The CIC format is specifically for community enterprise and it has the sort of ethos that is consistent with that, whereas the company limited by shares or guarantee does not.

Lord Sainsbury of Turville: My Lords, I still think that the argument that this confers any benefit is remote. Against that, one will have to set the question of confusion. The only argument for it is the argument of legal purity—that this is the way that we have always done it—and even that is slightly tarnished by the fact that it has not always been true.
	There are many areas of Part 2 of the Bill where we have been able and happy to table amendments in response to concerns that have been raised in Committee. However, we strongly believe in this case that the amendment would have negative consequences for both CICs and charities. Our policy is that CICs should not have charitable status. The CIC has been developed as a new option for organisations seeking a flexible company form, not subject to the restrictions of charitable status but with an asset lock policed by an independent CIC regulator.
	That forms a clear and separate brand that has instantly recognisable attributes and will be easily understood by the social enterprise sector, the community, and most importantly by banks and other businesses dealing with CICs. That is the basis on which the CIC has been designed and on which we consulted last year. The CIC form is not intended for use by charities and is not designed for them. Charities already have a wide range of forms of incorporation available to them, including existing company forms. The draft Charities Bill published in May offers an additional form specially designed for charities, the charitable incorporated organisation, or CIO.
	As I said in Committee, we are not depriving charitable organisations of a useful choice. The CIC offers nothing that cannot already be obtained using existing company forms. The key features of the CIC form are a regulated asset lock and a clear identity. Charities already have both those features because of their regulation by the Charity Commission. If a charity was also a CIC, it would simply take on additional and overlapping regulation from the CIC regulator. Therefore, an organisation that wanted to be a charitable company would be far better advised to use an existing company form, such as the company limited by guarantee, than to disadvantage itself by using the CIC form.
	We and the Home Office also believe that the amendment would damage both the charity and CIC brands. Charity at present is a clear and valued brand. Regulation by the Charity Commission means that there are tight restrictions on charities, in particular charities are distinct both in the public mind and in reality from profit-making companies. Companies pay their directors and trade freely in a way that charities cannot. Furthermore, the charity brand is synonymous with a tremendous amount of goodwill and public confidence. CICs are companies, and while they have an asset lock they will trade more freely and in a manner of their choosing, may pay directors, and in some cases may distribute limited dividends to shareholders. If CICs were able to be treated as charitable, there would be a fundamental blur in that distinction, as other CICs would then trade with non-charitable purposes. That would lead to a complex knot of issues between the Charity Commission—

Lord Glentoran: My Lords, I thank the noble Lord for giving way. As I understand it, CICs can issue debentures and raise funds in that way. Is that so with charitable companies? Can a limited company that is a charity issue debentures and raise funds in the same way?

Lord Sainsbury of Turville: My Lords, I think not, but I would need to ask. Perhaps the noble Lord, Lord Phillips, will rise to his feet to give some legal advice.

Lord Phillips of Sudbury: My Lords, for a small fee! Without question, the charity can raise funds by issuing debentures if its constitution so allows; or by a mortgage if its constitution so allows.

Lord Sainsbury of Turville: My Lords, I hope that answer gave the information required. That was certainly the simplest way to get the advice.
	I am not certain of the relevance to the argument. The fact is that we are going to get this knot of issues between the Charity Commission and the CIC regulator. It is clear that it would be necessary to remove so many of the new and flexible features of what a CIC is in order to make it fully compliant with the requirements of charity law that in fact the CIC would cease to be a CIC in all but name. It has been suggested that the CIC "brand" might be of benefit to a charity, but we have seen absolutely no evidence of that. As I have said, the CIC is not intended for charities. The noble Lord, Lord Phillips, said that he had received many representations. We have received no representations on the issue, so I do not think that there is an enormous number of people who want this.
	Even if the argument that the CIC brand might be of benefit to a charity were true, which I doubt, it would not outweigh the very real dangers of confusing two separate vehicles that are both intended for public benefit, but in their own distinctive ways. Additionally, we would not want the CIC to develop into a brand for social enterprise in general. As I have said, the CIC is designed to be a new and useful option, but one that sits within a wider choice of organisational forms. Consultation responses on the issue of branding strongly supported this approach, half of the respondents specifically cautioning against the CIC becoming the brand for social enterprise.
	In closing, I repeat that the Government have carefully considered the arguments advanced by the Opposition both inside and outside Parliament. We have also consulted widely, including with the Charity Commission, which has written to us supporting the Government's position. I have placed a copy of that letter in the Library of the House. We remain convinced that the policy of not allowing CICs to be treated as charities is right, for the reasons that I have given. That is why we are strongly opposed to this amendment.

Lord Phillips of Sudbury: My Lords, I am most grateful to the Minister for his usual courteous and detailed reply. I am also grateful to the other Members of the House who contributed to the debate so helpfully. At this time of night, having had a full debate, I will not labour the argument. This is the third time that we have been round the mulberry bush in detail. The noble Lord, Lord Graham, said that there were other opportunities to pursue the point. I am not sure what they are, except the one that I am now going to adopt, which is to test the opinion of the House.

On Question, Whether the said amendment (No. 45) shall be agreed to?
	Their Lordships divided: Contents, 94; Not-Contents, 105.

Resolved in the negative, and amendment disagreed to accordingly.

Lord Sainsbury of Turville: moved Amendment No. 46:
	Page 27, line 3, leave out from "purposes" to "a" in line 4 and insert "is to be treated as not being so established, and accordingly—
	(a) is not"

Lord Sainsbury of Turville: My Lords, we have debated the Government's policy that CICs should not be treated as charities and should not have either the benefits or the obligations of charitable status. This amendment does not affect that policy. Part of the intention of Clause 23(3) is that a CIC, in its capacity as a company, should be excluded from tax reliefs for charities. It has been drawn to our attention that the relevant provisions of tax law, such as Section 506(1) of the Income and Corporation Taxes Act 1988, use a definition of "charity" that is very similar to, but not identical to, the definition used in our Bill, which is that used in the Charities Act 1993.
	That could in principle lead to uncertainty as to whether CICs with wholly charitable purposes may be considered to be charities for tax purposes. The amendment should remove any doubt that CICs are not to be treated as charities under the 1988 Act or for any other tax purposes.
	In turn, CICs and outright gifts or bequests to them will not be eligible for any tax reliefs or exemptions which are available only to charities or for charitable giving. A donation to a CIC for its own purposes will not attract relief, since this legislation makes it clear that a CIC is not to be treated as established for charitable purposes. However, a donation to a charitable trust of which a CIC is trustee will be eligible for relief. The charitable status of a trust is unaffected by the status of the trustee. I beg to move.

On Question, amendment agreed to.
	Clause 24 [Regulator]:

Lord Sainsbury of Turville: moved Amendment No. 47:
	Page 27, line 19, after "with" insert ", and with organisations representing,"

Lord Sainsbury of Turville: My Lords, this group of government amendments deals with a number of changes to the Bill regarding the regulator in Clause 24 and Schedule 3. It also contains two amendments on the reporting and accounting procedures for the regulator and the official property holder in Schedules 3 and 5.
	In Grand Committee an amendment to Clause 24 was tabled by my noble friends Lord Fyfe of Fairfield and Lady Thornton which proposed making it a formal requirement for the regulator to establish and consult a practitioner panel. As I said during the debate, we fully intend that the regulator should carry out a wide range of consultation and expect this to include consultation with practitioners and experts from the sector. However, we did not believe an amendment to the Bill formalising how the regulator should consult with a panel or panels was necessary.
	We have subsequently held discussions with the Social Enterprise Coalition and have reached the conclusion that it would be helpful to have an amendment requiring the regulator to have regard to the outcome of consultations with all appropriate organisations, including representative bodies. The amendment to Clause 24(4)(b) therefore directs the regulator to have regard to the outcome of consultations with organisations representing CICs and others with relevant experience. This would include any relevant panels of experts. We believe that the regulator is also likely to want to enter into a memorandum of understanding with the Social Enterprise Coalition, and perhaps other organisations, about how consultation of this sort would work in practice.
	Clause 24(4)(c) directs the regulator to have regard to the desirability of using resources in the most efficient and economic way. It is our view that the duty applies only to the use by the regulator of his or her own resources. However, during debate in Committee it became apparent that others had interpreted it as referring to the use of resources by CICs. As a result, and in accordance with the request made in Grand Committee by the noble Lord, Lord Phillips, we are happy to amend the duty in subsection (4)(c) so that it explicitly refers to the use of the regulator's resources.
	We have tabled an amendment to Schedule 3 in response to the request made by the noble Lord, Lord Glentoran, for details of the maximum length of appointment and reappointment to appear in the Bill. The amendment puts certain restrictions on the period of appointment for the regulator into Schedule 3. As my noble friend Lord Evans said in Grand Committee, the regulator's appointment will follow the code of practice for ministerial appointments to public bodies published by the Commissioner for Public Appointments. Therefore the amendment follows the provisions of that code.
	The final two amendments deal with the reporting and accounting requirements for the regulator and the official property holder in Schedules 3 and 5. This fulfils the commitments given by my noble friend Lord Evans and me during Grand Committee to amend Schedule 3 to give the Secretary of State the power to require the regulator to produce separate accounts, and to amend Schedule 5 to require the official property holder to produce a yearly report of his or her activities.
	In the short term we do not expect that it will be necessary to require the regulator to produce separate accounts. At least initially the regulator's office will be very small and will be wholly funded by the DTI. Therefore the regulator will be accounted for within the DTI's accounts. However, in the future it is intended that the regulator will move towards being self-financing through fee income. It is also possible that the CIC regulator may expand in size if necessary to cover increased demand for CICs.
	These amendments have been brought forward following discussions with the National Audit Office. Schedule 3 already gives the Secretary of State the power to require the regulator to provide such reports and information relating to the performance of the regulator's functions as she might specify. The regulator is also already under an obligation to provide an annual report on the exercise of his functions.
	The amendments reflect our policy that it should be possible to require the regulator to produce separate accounts and that those accounts should be subject to appropriate scrutiny. It became apparent that the power of the Secretary of State to require reports and information was not sufficient in this regard.
	Amendment No. 64 to Schedule 5 requires the official property holder to produce a yearly report on the exercise of the functions carried out by him or her. This amendment was also developed following discussions with the National Audit Office. The official property holder must send the report to the regulator and the regulator must forward it on to the Secretary of State, who must lay it before each House of Parliament. These amendments to Schedules 3 and 5 will improve the transparency and scrutiny of the regulator and the official property holder. I beg to move.

Lord Glentoran: My Lords, I thank the Minister for bringing forward these amendments and going through them so clearly. Between us all—Ministers, government officials, Members from the Liberal Democrat Benches and ourselves—the meetings we have had between Grand Committee and today indicate that we have moved a long way forward in improving this part of the Bill.
	I believe that these amendments are the result of lobbying on the part of the Social Enterprise Coalition. They mark a step forward in ensuring that the co-operation and consultation of the regulator with the body representing CICs is made explicit on the face of the Bill. We also welcome the clarification provided by Amendment No. 48, which will ensure that the regulator must have regard, when discharging his duties, to the desirability of using his own resources rather than those of the companies under his regulation,
	"in the most efficient and economic way".
	Turning to the amendments to Schedule 3, Amendment No. 52 goes a considerable way to meeting the requirements we sought in Grand Committee. We argued that the terms of office and appointment of the regulator should be put on to the face of the Bill rather than it being assumed that they would be covered by the codes of practice governing ministerial appointments to public bodies. Our original amendment suggested three-year terms, but we have no problem with the provision for no more than five years proposed by this amendment. We thank the Government for listening to our concerns and making the terms of office explicit on the face of the Bill.
	Amendments Nos. 53 and 54 would expand the reporting requirements on the regulator and the official property holder. The Minister has mentioned that these amendments were developed after discussions with the National Audit Office and the Treasury. I have to say that I was slightly surprised to learn that the Government did not consult the NAO and the Treasury before bringing the Bill forward in Parliament. One would have hoped that such discussions might have taken place earlier. However, we have no substantial problem with the new requirements on reporting introduced by these amendments, and we welcome the accountability they introduce for the regulator and the official property holder. We support the amendments.

Lord Phillips of Sudbury: My Lords, I associate myself with the comments of the noble Lord, Lord Glentoran, and I am obliged for the particular amendment brought forward by the Minister pursuant to remarks I made at the previous stage.

Baroness Thornton: My Lords, I thank my noble friend on the Front Bench.

On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendment No. 48:
	Page 27, line 21, after "using" insert "the Regulator's"
	On Question, amendment agreed to.

Lord Evans of Temple Guiting: moved Amendment No. 49:
	Page 27, line 23, leave out from first "The" to end of line 27 and insert "Regulator may issue guidance, or otherwise provide assistance, about any matter relating to community interest companies.
	( ) The Secretary of State may require the Regulator to issue guidance or otherwise provide assistance about any matter relating to community interest companies which is specified by the Secretary of State."

Lord Evans of Temple Guiting: My Lords, in moving Amendment No. 49, I shall speak also to Amendments Nos. 50, 51 and 84. The Government have prepared these amendments in the light of the debate on Clause 24 in Grand Committee. The noble Lord, Lord Phillips of Sudbury, wondered whether the regulator had discretion to refuse to offer guidance and assistance even where the Secretary of State had instructed such help to be provided. The noble Lords, Lord Glentoran and Lord Hodgson, had similar concerns.
	Clause 24(5) currently contains two linked but separate provisions about advice and information. The regulator has the power to issue guidance or otherwise give assistance on any matters relating to CICs. This may include advice on the permissibility of actions if the regulator believes that to be appropriate. In addition the Secretary of State can require the regulator to provide guidance or assistance.
	These amendments to Clause 24 are intended to make this clearer by splitting subsection (5) into two subsections covering the powers of the regulator and the Secretary of State. This should make it clear that the regulator cannot refuse to provide any guidance or assistance on CICs that the Secretary of State has required him or her to provide.
	The amendment to Clause 54 is in response to the debate in Grand Committee about how far the regulator should be obliged to provide information free of charge. During that debate, I said that we expected that the regulator would provide guidance on a number of areas and that the core guidance, of general interest to CICs and others, would be made freely available. The noble Lord, Lord Phillips of Sudbury, suggested that the Bill should make it clear that general guidance would be available for free. This amendment seeks to do that and I am grateful to the noble Lord for his suggestion.
	The amendment prevents the regulator using his powers to charge fees under Clause 54(3) for information that he considers to be of general interest. As I have said, if the regulator fails to provide advice or guidance, the Secretary of State can exercise her powers under Clause 24 to insist that he does. Where the regulator issues general guidance as a result of a requirement from the Secretary of State, he will not be able to exercise his powers under Clause 54(3) to charge a fee for such guidance. I beg to move.

Lord Glentoran: My Lords, for clarification, I assume that the Minister was speaking to all the amendments in the group—that is, Amendments Nos. 54 to 60 and 86.

Lord Evans of Temple Guiting: My Lords, I apologise for not making that clear.

Lord Glentoran: My Lords, the amendments focus on the guidance which we believe is a fundamental and key issue, especially as CICs are new kinds of companies. I thank the Government for listening to our concerns voiced during the Committee stage. We were certainly perturbed that the regulator's right to provide advice was fettered by the Bill. I am now happy to see that the regulator has the power to issue guidance and provide assistance free of charge at his own behest or on the direction of the Secretary of State. For all those companies which opt for CIC status but are unfamiliar with the requirements that they will have to follow, this is a vital provision. I hope that this helps to ensure that the take up of CIC as a company form is both successful and widespread.
	Amendment No. 84, in particular, is welcome. This ensures that the provision of guidance by the regulator will not be seen as one of the non-statutory services for which the regulator may charge an additional fee under Clause 54(3). At Committee stage we were very concerned about what additional services the regulator could provide at his discretion and charge for. Having received some clarification from the Minister, at this stage we are content with Clause 54(3), with the proviso in Amendment No. 84 which ensures that the provision of guidance is not classed as an additional discretionary service.
	As to Amendment No. 60, we are concerned that there are still no regulations; we have not seen any regulations in relation to the procedure to be followed by the appeal officer.

Lord Sainsbury of Turville: My Lords, there are regulations. I think they have been placed in the Library of the House.

Lord Glentoran: My Lords, I thank the Minister for that information. I apologise if I have not kept up to date.
	In relation to Amendment No. 86, we fully support the changes made to Clause 25 and the process of appeal to the appeal officer against a decision of the regulator. I am heartened to see that the Minister has listened to the concerns voiced at Committee stage by both the noble Lord, Lord Phillips, and myself.
	My name is attached to Amendment No. 56, which would allow an appeal on the ground that the regulator made a material error of law or circumstance. I can see the point that the Minister has made—

Lord Phillips of Sudbury: My Lords, I hate to interrupt the noble Lord—I nearly said "my noble friend"—but is he not speaking to the next group of amendments? Are we discussing both groups? I am getting lost.

Lord Evans of Temple Guiting: My Lords, with all due respect, I think the noble Lord, Lord Glentoran, has mentioned Amendment No. 86 on two occasions; I believe the last amendment in the group that we are discussing is Amendment No. 84.

Lord Glentoran: My Lords, I apologise. The groupings list I have may be out of date. The one I am reading from refers to Amendments Nos. 54 to 60 and 86.

Lord Phillips of Sudbury: My Lords, we have not got there yet; we are on the previous group.

Lord Glentoran: My Lords, are we discussing Amendments Nos. 49, 50, 51 and 84?

Lord Phillips of Sudbury: Yes.

Lord Glentoran: My Lords, I apologise.

Lord Phillips of Sudbury: My Lords, the amendments are extremely helpful. I am obliged for their content.

On Question, amendment agreed to.

Lord Evans of Temple Guiting: moved Amendments Nos. 50 and 51:
	Page 27, line 28, leave out "subsection (5)" and insert "this section"
	Page 27, line 30, leave out "that subsection" and insert "this section"
	On Question, amendments agreed to.
	Schedule 3 [Regulator of Community Interest Companies]:

Lord Evans of Temple Guiting: moved Amendments Nos. 52 and 53:
	Page 62, line 8, leave out from beginning to first "the" in line 13 and insert—
	"( ) The period for which a person is appointed as Regulator must not exceed five years.
	( ) A person who has held office as Regulator may be re-appointed, once only, for a further period not exceeding five years.
	( ) The Regulator may at any time resign the office by giving notice in writing to the Secretary of State.
	( ) "
	Page 63, line 10, leave out sub-paragraphs (1) and (2) and insert—
	"(1) The Regulator must, in respect of each financial year, prepare a report on the exercise of the Regulator's functions during the financial year.
	(1A) The Regulator must prepare accounts in respect of a financial year if the Secretary of State so directs.
	(1B) The Regulator must send a copy of the accounts to the Comptroller and Auditor General.
	(1C) The Comptroller and Auditor General must examine, certify and report on the accounts and send a copy of the report to the Regulator.
	(1D) The Regulator must include the accounts and the Comptroller and Auditor General's report on them in the report prepared by the Regulator in respect of the financial year to which the accounts relate.
	(1E) The Regulator must prepare that report as soon as possible after the end of the financial year to which it relates.
	(1F) The Regulator must send to the Secretary of State a copy of—
	(a) each report prepared by the Regulator under sub-paragraph (1), and
	(b) each report prepared by the Official Property Holder under paragraph 6 of Schedule 5.
	(1G) The Secretary of State must lay before each House of Parliament a copy of each of those reports."
	On Question, amendments agreed to.
	Clause 25 [Appeal Officer]:

Lord Sainsbury of Turville: moved Amendment No. 54:
	Page 27, line 42, leave out "only"

Lord Sainsbury of Turville: My Lords, in moving Amendment No. 54, I shall speak also to government Amendments Nos. 55, 57, 58, 59 and 86, and to opposition Amendments Nos. 56 and 60.
	The Government have tabled the amendments to Clause 25 following the debate on the clause in Grand Committee and further discussions with noble Lords opposite. On reflection, we believe that widening the remit of the appeal officer to enable him to consider appeals on matters of law as well as on issues of fact is reasonable and will be helpful to CICs. We believe that the government amendments achieve the intended effect of the opposition amendments to the clause.
	It is not necessary to create an additional ground of appeal that the regulator made a material error as to the circumstances. This is because any such error on the part of the regulator will either be an error as to the facts or an error as to the law. In either case, a ground of appeal will already be available. The reference to circumstances would create confusion by implying that circumstances were somehow different from matters of fact or law.
	Additionally, during our debate at the Committee stage on the right of appeal to the new appeal officer, the noble Lord, Lord Phillips of Sudbury, raised a question about the effectiveness of the rights of appeal to the appeal officer in Clauses 33 and 42 of the Bill. I wrote to the noble Lord, Lord Phillips, on that point on 30 April 2004 and copied the letter to the noble Lord, Lord Glentoran. A copy has been placed in the Library of the House. The letter confirmed that the provisions of Clause 25 applied to all appeals to the appeal officer made under this part of the Bill.
	One of the particular points raised by the noble Lord, Lord Phillips, was whether the regulator is obliged to give reasons for his decision. As I said in my letter to the noble Lord, the Government's view is that the regulator is likely to be under an implied duty to give his reasons whenever he takes a decision or makes an order in respect of which Part 2 of the Bill provides a right of appeal. However, we have concluded that it would be helpful to make it clear on the face of the Bill that the regulator should always give reasons for every decision or order for which the Bill provides a right of appeal. This will remove any room for doubt on the matter. It will reassure and inform CICs of their rights and should guide the regulator towards developing his procedures accordingly.
	Briefly, to address Amendment No. 60, I should like to explain again the Government's position on provisions to be made under the powers in Schedule 4. The absence of draft provisions in the dummy regulations on the practice and procedure of the appeal officer reflects our view that this is one of the simpler delegated powers in this part of the Bill. In our memorandum to the Delegated Powers and Regulatory Reform Committee, we said that we believed that the procedures that will be set under the power will be technical and non-contentious. These will include provisions for time limits for appeals and setting the practice and procedures within which the appeal officer may operate.
	The regulations, including any time limits, will of course be based on what is regarded as good practice with regard to the precedents under other appeal procedures. To this end we are in contact with the Council on Tribunals and we intend to consult it on the preparation of draft regulations under this power. We will also be fully involving the social enterprise sector in their development. There will be an opportunity for the sector and others to comment formally, as well as informally, on them before they are finalised. I therefore ask the opposition parties to withdraw their amendments. I beg to move.

Lord Phillips of Sudbury: My Lords, I am not entirely sure that I understand the impact of Amendment No. 60, which seeks to remove paragraph 4 of Schedule 4 on page 64. The Minister referred to discussions with the Council on Tribunals and so on, but Amendment No. 60 would leave out altogether paragraph 4 of Schedule 4, the paragraph which deals with procedures. Under what power will procedures be brought forward hereafter if paragraph 4 is removed in its entirety and nothing put in its place?

Lord Evans of Temple Guiting: My Lords, in an attempt to clarify the position, I think that the noble Lord is talking to an opposition amendment that has not yet been moved.

Lord Phillips of Sudbury: My Lords, the Minister is absolutely right—the amendment does not have "g" in front of it. That makes the whole matter infinitely more understandable. I am obliged.
	As I am on my feet, I hope that the noble Lord, Lord Glentoran, will not mind me responding generally to the amendments. They are both generous and extremely helpful. I pick out Amendments Nos. 55 and 86 in particular. Needless to say, I shall be more than delighted not to move my Amendment No. 56, which is in the group, because Amendment No. 55 does more or less the same thing. I am grateful that the Minister has listened, and I believe that the Bill is better for these amendments.

Lord Glentoran: My Lords, for clarification, first I apologise to the House and to Hansard for getting confused and trying to get us to dinner too quickly.
	To repeat what I said before, Amendment No. 60 is a probing amendment concerning regulations. The Minister has responded by saying that they are now in the Library. With regard to the remainder of the amendments, we fully support all the changes to Clause 25, in particular, and the process of appeal to the appeal officer against a decision of the regulator. We are heartened to see that the Minister has listened to concerns voiced in Committee by the noble Lord, Lord Phillips, and myself. I have put my name to Amendment No. 56, which would allow an appeal on the ground that the regulator made a material error "of law or circumstances". The noble Lord, Lord Phillips, has said that he will not be moving that amendment. In general, we welcome all the amendments.

On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendment No. 55:
	Page 27, leave out line 43 and insert "of law or fact"
	On Question, amendment agreed to.
	[Amendment No. 56 not moved.]

Lord Sainsbury of Turville: moved Amendment No. 57:
	Page 28, line 1, leave out "find the facts and either"
	On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendments Nos. 58 and 59:
	Page 28, line 2, after "appeal," insert—
	"( ) allow the appeal,"
	Page 28, leave out line 5 and insert "any rulings of law and findings of fact made by the Appeal Officer"
	On Question, amendments agreed to.
	Schedule 4 [Appeal Officer for Community Interest Companies]:
	[Amendment No. 60 not moved.]
	Schedule 5 [Official Property Holder for Community Interest Companies]:

Lord Evans of Temple Guiting: moved Amendment No. 61:
	Page 65, line 4, leave out sub-paragraph (1).

Lord Evans of Temple Guiting: My Lords, these amendments address several areas of concern that have been raised about the official property holder. Amendment No. 62 has been tabled to ensure that the official property holder will hold property on trust for whoever is the rightful owner of that property. Currently, the Bill provides that the official property holder holds property on trust for a CIC, but this will not always be correct, because the CIC may not be the true owner of the property. By making the official property holder a trustee, the provisions of trust law will apply so that the official property holder holds the property on trust for its rightful owner.
	Where the official property holder ends up holding property which does not actually belong to the CIC, it is important that the owners of that property can get it back. Therefore, Amendment No. 63 enables the official property holder to release the property in this situation. In fact, the amendment goes much further than that, and ensures that the official property holder is able to release or deal with the property in order to give effect to any right or interest that any person, other than the CIC, has in the property. This ensures that the vesting of property in the official property holder will not affect any third party rights in the property.
	As the official property holder is a trustee, he or she will have a duty under the general provisions of trust law to preserve the trust property and to pay it to those who are entitled to it. This will mean that the official property holder should give effect to any third party rights or interests in the property, provided he or she is satisfied that they are legitimate.
	Amendment No. 63 also fulfils the commitment that my noble friend Lord Sainsbury gave in Grand Committee to clarify the relationship between the official property holder and the insolvency regime. We are grateful to the Charity Law Association and others for raising this issue. The Bill, as amended, will ensure that the official property holder is able to follow the instructions of an administrative receiver, administrator or liquidator of the CIC. This amendment reflects our policy intention, which my noble friend Lord Sainsbury set out in Committee, that the assets which the official property holder holds on trust for a CIC should, on insolvency, be available to satisfy the liabilities of the CIC concerned.
	Amendment No. 61 removes the requirements on the official property holder to comply with any general or special directions given by the regulator. This will ensure that the regulator cannot prevent the official property holder giving effect to the interests of third parties in the property or complying with the requests of an administrator, administrative receiver or liquidator of the CIC. I beg to move.

Lord Glentoran: My Lords, again, I thank the Minister for his explanation of these new government amendments. He warned us in Committee that some additional amendments might be necessary to deal with insolvency practitioners. I also thank him and the Government for the letter that we received when the amendments were sent out for publication. It was extremely helpful, and we are very grateful.
	While I appreciate the need for the amendments as described by the Minister, I still find having a separate position of official property holder somewhat unnecessary. The Minister gave some reasons why the regulator could not hold property as a trustee. He is not a corporation sole, as the official property holder is. But I still believe that it significantly increases the administrative burden, expense and bureaucracy of the new system to have an official property holder as well as a regulator and appeal officer. I just feel that too many people in separate posts and small empires can or may spring up.

Lord Evans of Temple Guiting: My Lords, I shall briefly say why the official property holder is necessary. The regulator will use his various supervisory powers where appropriate. The power to vest property in the official property holder allows the regulator to take immediate action to secure assets. This enables the regulator to take quicker action to safeguard the property for the community interest than would be possible by removing directors or appointing a manager. This is vital to maintain public confidence in CICs where there is a risk of abuse of assets. That is why, in our view, there has to be an official property holder. I hope that the noble Lord is satisfied with that explanation.

On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendments Nos. 62 and 63:
	Page 65, leave out lines 17 and 18 and insert "as a trustee.".
	Page 65, line 19, leave out "But he" and insert "The Official Property Holder may release or deal with the property—
	(a) to give effect to any interest in or right over the property of any person (other than the community interest company by which, or in trust for which, the property was held before it was vested or transferred), or
	(b) at the request of a person appointed to act as administrative receiver, administrator, provisional liquidator or liquidator of the company.
	( ) Subject to sub-paragraph (2), the Official Property Holder"
	On Question, amendments agreed to.

Lord Sainsbury of Turville: moved Amendment No. 64:
	Page 65, line 27, at end insert—
	"Reports
	(1) As soon as possible after the end of each financial year, the Official Property Holder must prepare a report on the exercise of the Official Property Holder's functions during the financial year.
	(2) The Official Property Holder must send a copy of the report to the Regulator.
	(3) "Financial year" means—
	(a) the period beginning with the date on which a person is first appointed as the Official Property Holder and ending with the next 31st March, and
	(b) each successive period of 12 months beginning with 1st April."
	On Question, amendment agreed to.
	Clause 27 [Cap on distribution and interest]:

Lord Evans of Temple Guiting: moved Amendment No. 65:
	Page 28, line 18, at beginning insert—
	"( ) Community interest companies must not distribute assets to their members unless regulations make provision authorising them to do so.
	( ) If regulations authorise community interest companies to distribute assets to their members, the regulations may impose limits on the extent to which they may do so."

Lord Evans of Temple Guiting: My Lords, in moving Amendment No. 65, I shall also speak to Amendments Nos. 66 and 67.
	In Committee, the noble Lord, Lord Glentoran, argued that Clause 27 should be revised so that regulations would be required, rather than permitted, to prohibit or set limits on distributions and interest payments. I responded that such a change was not desirable, since it would have the effect of requiring limits to be placed on all distributions to members and interest payments, including conventional debt interest payments by CICs, which we do not wish to limit.
	However, on reflection, we agree that the restriction on asset distributions to members is such an important feature of the CIC that it should be reflected in the Bill. The amendment we have proposed to Clause 27(1) will, I hope, address the concerns raised in Committee. We are grateful to the noble Lord, Lord Glentoran, for the pressure that he has put on us.
	The amendments turn around the structure of Clause 27(1)(a). All asset distributions to members will now be prohibited unless regulations provide otherwise. This structure replaces current Clause 27(1)(a), which simply allows regulations to impose prohibitions or limits.
	The Government of course intend to make regulations under this clause, as amended, in order to allow CICs to pay dividends on certain classes of share, subject to a cap on the level of dividends that will be set by the regulator. Therefore, our policy on asset distributions by CICs has not changed, but the amendment will ensure that distributions can be made only if regulations specifically authorise them.
	My noble friend Lord Sainsbury has sent to Members of the Opposition and placed in the Library of the House an illustrative draft of how we intend the regulations on distribution to work. As with the other regulation-making powers contained in Part 2 of the Bill, the Government have given an assurance that they will seek the views of interested parties before laying a final version of the regulations before Parliament.
	Amendment No. 68 would clarify the policy intention that underlies Clause 27(3)(b), which concerns the setting of different limits on asset distributions and interest payments by CICs. As I said in Committee, we intend that that would be used in respect of CICs which carry out activities in particular business sectors, or perhaps geographical areas, where a different limit seems appropriate. In considering how to set limits, and whether different limits are appropriate, the regulator will always be bound by the requirement, set out in Clause 27, to undertake appropriate consultation and to consider the impact which the limits that he sets will have on CICs.
	It became apparent in Committee that the Government and Members of the Opposition agreed that such flexibility was desirable, but that the provision as worded might enable the regulator to specify a limit for an individual CIC. The noble Lord, Lord Phillips of Sudbury, suggested that it might be helpful to amend the phrase "different limits for different cases" in order to remove that possibility. That is what our amendment would do.
	Amendment No. 69 also reflects debate in Committee. As I said then, the Government do not intend the power of the Secretary of State in Clause 27(5) to be used to require the regulator to change limits which he has set. Its purpose is simply to enable the Secretary of State to require the regulator to review the limits for particular groups or categories of CICs. For instance, if it seemed to the Secretary of State that there was a case for reviewing a particular limit, or indeed for setting a new limit for a particular description of CIC, she could require a review. In each case, the decision on what to do after the review had been carried out would lie with the regulator, who would of course be required by Clause 27(4) to consult before making any change to the limits.
	In the light of points made in Committee, we have accepted the suggestion of the noble Lord, Lord Phillips, that we delete the final words of Clause 27(5). That should make it clear that the Secretary of State's power extends only to requiring the regulator to carry out a review, while leaving it to the regulator to decide how the review should be carried out. In using this power, it would be quite reasonable for the Secretary of State to say why it was thought that a review was desirable. The regulator should, of course, have regard to any such explanation, but he will be under no obligation to follow it. It will be the responsibility of the regulator to decide what the outcome of the review will be, and the regulator must undertake appropriate consultation before setting any limit. I beg to move.

Lord Glentoran: My Lords, again, I thank the Minister for the amendments, which I support. I was certainly unhappy and I am a great deal happier now as a result of the amendments. They were brought about by detailed discussions that we had with the Government and officials. It is always encouraging when discussions and debates of that kind bear fruit.
	I spent some time thinking about how best to cap the distribution of assets and how the interest payments should work. In response to the amendment that we are discussing, I am particularly pleased that the provision which would allow the regulator to set different caps for "different cases" has now been changed to "different descriptions of community interest companies". That is a much more satisfactory situation.
	Amendment No. 70 would allow the regulator more freedom without having to abide by the Secretary of State's specifications in terms of how limits should be reviewed. We welcome that very much.
	With regard to the more technical rewording of the clause which Amendments Nos. 65 and 66 affect, I agree with the Minister that it is more sensible to have a default position where no distribution of assets is allowed, with regulations providing for exceptions to that situation. That is a preferable way to draft the clause on limits on distribution for the easy reason that most CICs will not be set up in such a manner as to be able or want to distribute any assets. We thank the Minister once again for listening to and debating with us outside the Chamber and for amending and drafting this complicated legislation in this way.

Lord Phillips of Sudbury: My Lords, I largely echo the comments of the noble Lord, Lord Glentoran, and I am grateful particularly for government amendments that respond to amendments that I moved at earlier stages.

On Question, amendment agreed to.

Lord Sainsbury of Turville: moved Amendments Nos. 66 to 70:
	Page 28, line 19, leave out paragraph (a).
	Page 28, line 23, leave out "The regulations" and insert "Regulations under this section"
	Page 28, line 27, leave out "cases" and insert "descriptions of community interest companies"
	Page 28, line 32, leave out "The regulations" and insert "Regulations under this section"
	Page 28, line 33, leave out from "limits" to end of line 34.
	On Question, amendments agreed to.
	Clause 28 [Distribution of assets on winding up]:

Lord Glentoran: moved Amendment No. 71:
	Page 28, line 39, at end insert—
	"( ) Regulations must provide that the distribution of residual assets by the Regulator must follow any recommendations specified by the community interest company in its memorandum and articles regarding which charity or other community interest company such assets should be distributed to."

Lord Glentoran: My Lords, Amendment No. 71 focuses on a point which we raised in Committee and which we felt it was important to return to again; that is, the regulator should be allowed to distribute any residual assets to any charity or CIC which is specified in the memorandum and articles of the CIC.
	It is vital that the CIC in question has discretion about where its residual assets end up. Although the Minister implied in Committee that the regulator would discuss that with the CIC, he would not be obliged to follow its specifications. Our amendment would make sure that the regulator acted in relation to the residual assets in accordance with the wishes of the CIC.
	Having tabled the amendment some time ago, I have now received a letter from the Minister which states that draft Regulation 21 has been redrafted to reflect our wishes. His letter states:
	"It is now explicit that the Regulator is required to direct the distribution of surplus assets among those charities or CICS that are named in the memorandum or articles of the CIC being wound up . . . unless a query by a member or director of the CIC leads him to conclude that a distribution to that CIC or charity is not appropriate . . . In deciding the proportions in which any surplus assets are distributed among the CICs or charities named in the memorandum or articles, the Regulator is required to have regard to any relevant provisions in the memorandum and articles".
	We warmly welcome the fact that the Government have taken on board our concerns and we are entirely satisfied with the changes which have been made to the draft regulations. I beg to move.

Lord Phillips of Sudbury: My Lords, I am in the strange position of not being as satisfied with what the Government are proposing in draft regulations as the mover of the amendment. The regulator should have no right to decide the destination of the net assets of a CIC on winding up where the CIC has specified a charity or charities, charitable purposes, or another CIC or CICs. As I understood it from the noble Lord, Lord Glentoran, there would be a residual right on the part of the regulator to override distributions made within those classes. I will read with care and interest what the noble Lord, Lord Glentoran, said and indeed what the Minister says in reply. I see no reason at all why the regulator should have any more powers in that regard than has the Charity Commission in regard to charitable companies in distribution of assets.

Lord Sainsbury of Turville: My Lords, perhaps I could just correct a statement that I made earlier. The noble Lord, Lord Glentoran, asked whether the draft regulations had been published and I said that they had. I was referring to the regulations published in February this year. For the avoidance of doubt, I should say that the regulations do not cover the appeal officer's procedures.
	We do not accept the amendment because we believe that the issues it raises are best dealt with in regulations, rather than in the Bill. However, we agree with the aim underlying the amendment, that a CIC should be able to influence the regulator's decisions about the distribution of residual assets. That is what we intend to happen, and we have recently revised the draft regulations dealing with this, to clarify the position. I sent a new version of the relevant draft regulations to the Opposition, and placed a copy in the Library of the House on 30 June, the day when this amendment was tabled.
	The reason we prefer to deal with this issue in regulations is that it is a quite technical and detailed matter. In summary, we have revised the regulation so that residual assets will usually be distributed to any charity or other CIC named for that purpose in the memorandum and articles of the CIC that is being wound up. That is what this amendment also seeks to do. However, it fails to deal with the complex variety of situations that may arise on a winding-up of a CIC. For example, the amendment would require the assets to be distributed to the charity or CIC specified in the memorandum or articles, even if that CIC or charity was now wholly inappropriate, and even if the members or directors of the CIC no longer wanted the assets to be distributed to that CIC or charity. The amendment does not allow for the members or directors to be consulted on their views.
	Another concern is that the amendment does not allow for the possibility that the recommendations in the memorandum and articles are unclear or conflicting. It would therefore be likely to lead to more litigation than our approach. If a CIC or charity mentioned in the memorandum or articles was itself in the process of being wound up, the amendment would still require assets to be transferred to it, although that would often be inappropriate.
	All those issues are dealt with in the draft regulations, but could not be dealt with if this amendment is passed. Instead, our revised draft regulations require the surplus assets to be distributed to the CICs or charities specified in the memorandum or articles of the CIC. The regulator can depart from that only if the proposed beneficiary is being wound up or if a member or director of the CIC asks him to intervene and the regulator agrees that the instructions in the CIC's constitution are inappropriate. That is intended to deal with a situation in which the activities of the wound-up CIC or of a potential beneficiary CIC have changed over time, so that the provisions in the memorandum and articles are no longer a fair reflection of the uses to which residual assets should be put. It will also be relevant if the proposed beneficiary no longer exists.
	In all cases, the regulator is required to consult the members and directors of the CIC, unless it is impracticable or inappropriate to do so. Examples might be where the members cannot be found or where the surplus assets are so small that the costs of consultation would exceed their value. Those provisions strike the right balance between giving the CIC a strong influence over the use of its residual assets, and allowing the regulator to deal with well founded concerns that distributions are inappropriate. That regulatory protection is needed because CICs, unlike charities, will be able to change their activities relatively easily, and the provisions in their memorandum and articles about who should benefit on a winding-up may not always be updated accordingly.
	I am sure that the noble Lord, Lord Glentoran, would like to see some of this reflected in the Bill. But as I have said, we think that regulations are the right place for these provisions, because of the fine detail they involve. The regulations will be subject to the affirmative procedure in both Houses. Time will tell if we have got the balance between the CIC and the regulator exactly right; if we have not, the advantage of the method is that regulations can be adjusted accordingly.

Lord Phillips of Sudbury: My Lords, could I ask for clarification? In the constitution of charities, it is conventional these days to stipulate that the destination of net assets on winding up should be as the members of the charity or as the governing body of the charity decide, making it clear that the decision is limited to another charity—or, in this case, another charity or another CIC. As I understand the Minister, he has laid draft regulations that do not allow that and which talk only in terms of the charity or CIC already named in the constitution of the CIC. I would be most grateful to hear him say that, if I am right, the Government will reconsider the point. It seems wholly unnecessary to tie the body's hands in advance, provided that the members or governing body in the event choose another charity.

Lord Sainsbury of Turville: My Lords, charity law requires that the residual assets of a wound-up charity must be applied to purposes similar to those of the donor charity. CICs are not subject to those restrictions; provided that a CIC satisfies the community interest, it can change its activities within the scope of the objects, which can simply be general trading objects. That is why we believe that it is helpful to give the CIC regulator a role in the process of distributing residual assets of CICs.
	The noble Lord was asking specifically whether the regulations could allow for the possibility that a CIC might decide to leave it to the current members of the CIC to make the decision about what would happen in a winding-up. As I understand the matter, I believe that it could be allowed for, but I shall look into the matter in detail and let the noble Lord know.

Lord Glentoran: My Lords, I thank the Minister for that response. I am not sure that I am altogether happy with the situation. It is complicated and detailed. I accept that there is a role for regulations, but I am not totally satisfied. I shall go away and read what the Minister has said, and I may bring an amendment back at Third Reading. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 29 [Memorandum and articles]:

Lord Phillips of Sudbury: moved Amendment No. 72:
	Page 29, line 5, at end insert "and has a community interest object"

Lord Phillips of Sudbury: My Lords, I freely admit that the point of this amendment did not occur to me until I heard the responses of the Ministers at Committee stage with regard to other amendments. That was the first time that we on these Benches realised that it will be possible under the Bill as it stands for a community interest company not to have any community interest objects. I do not know whether that was a conscious intention on the Government's part in framing the legislation. However, it seems very odd indeed and wholly counter-intuitive that this very special animal, a community interest company, can have any objects at all and none of them community interest objects, as defined in the Bill.
	Clause 32(3) states:
	"An object stated in the memorandum of a company is a community interest object of the company if a reasonable person might consider that the carrying on of activities by the company in furtherance of the object is for the benefit of the community".
	It is not actually required that a CIC should have any community interest objects—but why not? There seems to be a real lacuna there.
	The provisions could lead to a situation in which some individuals, institutions or other CICs could put money, whether by way of share capital or loans, into a CIC on the basis of the director saying that the CIC's activities would be such and such, and there would be nothing at all—unless there were some contractual provision—to prevent the same directors a year or two later abandoning that area of CIC activity and carrying on other activities. I am blowed if I can see the justification in that. The point about having CIC objects that are described in terms that an investor or lender can understand is that they will have some assurance that the CIC will be carried on in that sector. One also has the assistance that if the board of directors goes completely bananas and tries to operate in a different field altogether one then has the ultra vires protection.
	I appreciate that one must have community interest activities if one has no community interest objects. But I do not think that that answers my case. This amendment is designed to be helpful and to improve the Bill. I shall be fascinated to know whether there is a coherent argument against the amendment. I beg to move.

Baroness Turner of Camden: My Lords, there is a misprint on the Marshalled List. The amendment should read "and have a community interest object".

Lord Phillips of Sudbury: My Lords, I am most grateful to the Deputy Speaker. I should have said that there is a misprint. The amendment should read "and have a community interest object", not "and has a community interest object".

Lord Glentoran: My Lords, I support the amendment of the noble Lord, Lord Phillips. He has made it very clear and it is pretty self-explanatory. We also feel strongly that the memorandum and articles of a CIC should state that it has a community interest. After all, this is the basis for a company to claim CIC status. I see no problem with including this in memorandum and articles. It must be in the interests of transparency and clarity.

Lord Sainsbury of Turville: My Lords, I am sorry I rushed to my feet earlier but I was so keen to be helpful to the noble Lord in return for his help that I moved too quickly.
	This amendment is apparently intended to require all CICs to have community interest objects, thereby preventing them from having wider, more general trading objects. Our public consultation last year demonstrated that flexibility over the choice of objects is seen as very important to CICs. We made it clear in our report on the consultation that we intend CICs to have a choice between using general trading objects, if they want maximum freedom of operation, or choosing more narrowly defined community interest objects, if they wish to do so.
	The legal structure that we have developed will ensure that CICs will work for the community benefit, whether or not their objects commit them to do so. Every CIC will have to make a statement of its intent to pursue the community interest when it applies to become a CIC and it will be subject to an ongoing requirement that its activities must satisfy the community interest test.
	CICs will be able to choose to limit themselves to narrow community interest objects. In that case, if they want to change their activities, they will often need to change their objects, which will require the regulator's consent. The regulator will also be able to take supervisory action if they fail to carry on any activities in pursuit of their community interest objects. This provides reassurance to those dealing with the CIC about the activities it is carrying on, but it also imposes additional regulation on the CIC.
	Alternatively, we believe the CIC should be free to choose wider objects. Where it does so, it is less likely to need to change its objects when it changes its activities, so the need to obtain the regulator's consent to change its objects does not arise. Also, the regulator will not be concerned about the particular activities being carried on by the CIC, as long as they satisfy the community interest test. This option provides greater freedom and less regulation for a CIC than the use of community interest objects. We think it is useful for CICs to have the freedom to choose between the two options.
	The social enterprise sector has made it clear that it is happy with the flexibility that this approach gives. This amendment would remove that choice and we cannot accept it. In very simple terms, we have drafted the Bill in such a way as to give maximum flexibility and maximum choice and we hope that, on reflection, the noble Lord will be able to accept it on that basis.

Lord Phillips of Sudbury: My Lords, this is getting ever more metaphysical. Here we have an explanation from the Minister, who is indeed a metaphysical Minister, suggesting that one can have community interest objects that are not in pursuit of community interest objects. I cannot get my head round that. I do not want to prolong this debate so I suggest that the Minister and I have a cup of tea later and, if I persuade him of the error of his metaphysical ways, then we can deal with this at the next stage and if he persuades me, then I shall drop it. At the moment, I do not follow the argument. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Phillips of Sudbury: moved Amendment No. 73:
	Page 29, line 27, at end insert ", and
	( ) provision about payment of remuneration and other benefits to members and directors of the company."

Lord Phillips of Sudbury: My Lords, this amendment is grouped with a government amendment, Amendment No. 74. I am grateful that the Government have brought forward this modest concession that requires community interest company reports to include information about the remuneration of directors. I am not sure that that takes us much further than the Companies Acts already require—the Minister may tell us—as the government amendment does not say what information.
	I am trying to be helpful in moving this amendment. Throughout the debates we have had about the nature of the CIC and the purposes of this exercise, there has been a leitmotif of anxiety about uncontrolled remuneration representing a lacuna in the framework of CICs, which is designed to prevent those who run them creaming off profits in the way in which members of a private company can. As we all know, these days many companies use remuneration levels as a means of withdrawing surplus profits.
	The amendment that I am suggesting is a safety valve. It does not say that there must be regulations to this effect; it merely gives the Secretary of State the power under regulations to make provision about payment of remuneration. If it proves to be the case that there is a real problem about this and that it is undermining the efficacy and standing of the CIC sector as a whole, and if it proves that the other remedies to which the Minister has referred—including the right of the regulator to intervene in gross cases—are ineffectual, as I believe they would be, then at least there is power for the Secretary of State to bring in regulations that can be considered against the realities as they have unwound. It is a sensible defence against future eventualities. It is on that basis that I move the amendment, not expecting the Secretary of State necessarily to use this regulation-making power at the outset but as a stopgap if my fears are proved well founded. I beg to move.

Lord Glentoran: My Lords, we fully support the principle that the Bill should provide some way of ensuring that the cap on the distribution of assets is not bypassed by redirecting profit into the pockets of the directors. Essentially, there is a need in the Bill for transparency and accountability in terms of the remuneration paid to the directors.
	However, with all due respect to the noble Lord, Lord Phillips, I am more in favour of the provision in the Government's Amendment No. 74 than in his Amendment No. 73. Government Amendment No. 74 makes clear that regulations should prescribe what should be contained in the annual reports of CICs and that this must cover remuneration and may cover other information. As far as we are concerned, this is a welcome amendment and we are wholly in favour it. I believe that the publication of directors' salaries and so on in some detail in the annual report should be a sufficient deterrent against overpaying.

Lord Sainsbury of Turville: My Lords, I am delighted that the noble Lord withdrew Amendment No. 72. I should be very happy to talk to him at any time about the metaphysics of community interest objects. However, if he will allow me, I will require something stronger than a cup of tea to do so.
	I turn to Amendment No. 73 and government Amendment No. 74. We have discussed the topic of directors' remuneration at some length on Second Reading and in Committee. That discussion highlighted the importance of this matter, and in particular the need for a high level of transparency in the rewards paid to the directors of CICs. As I have previously said during the passage of the Bill, we believe that the correct place for this information is in the annual community interest company report. That is the most appropriate way of making this information available to stakeholders and other interested parties. The draft regulations that we published in February therefore require this information to be provided.
	Having considered the points made by the noble Lord, Lord Glentoran, in Grand Committee, we have tabled Amendment No. 74 in order to enshrine this transparency on the face of the Bill. The amendment is to Clause 31(3), and provides that the regulations must always require the community interest company report to include information about the remuneration of directors. This will ensure that stakeholders have information about the level of directors' remuneration in a CIC, which they can use if necessary to bring concerns about the level of remuneration to the regulator's attention.
	The noble Lord, Lord Phillips, has argued in Committee and since that the Bill does not provide adequate assurance that the regulator will be able to deal with excessive remuneration. I can assure him that we have looked again carefully at this, in the light of his comments. Having done so, we still believe that the current approach is the right one. The powers available to the regulator under Clauses 38 and 41 of the Bill should enable him to take action, not only where excessive pay amounts to misconduct or mismanagement of the CIC, but in other cases where levels of remuneration are significantly above the market rate, without justification. Although the regulator may not be able to act in every case that a given person might regard as "excessive", we believe that enforcement powers already in the Bill, together with the transparency provided by mandatory reporting on levels of CIC directors' pay, offer sufficient safeguards.
	As I explained in Committee, the Government do not wish to adopt an approach to this issue which would lead towards Parliament, or the CIC regulator, setting limits on what CICs can pay to their directors. That is because we get into very difficult territory if the Government or independent regulators start to dictate what private companies can pay their directors. Clearly, CICs are not just normal companies, which is why we have an additional layer of regulation and protection, to maintain public confidence that they are working for the community interest. But that extra regulation must be no greater than is required for the purpose. Otherwise, the resulting bureaucracy and regulatory uncertainty will be likely to make CICs a white elephant.
	That is why the Government resist Amendment No. 73, as we did in Committee. The amendment would create a climate where the Government were able, and perhaps expected, to impose limits on directors' pay. We do not think that that is necessary or desirable for the reasons I have given. I therefore commend Amendment No. 74 to the House.

Lord Phillips of Sudbury: My Lords, I am grateful to the Minister. I should, if I may, like to raise one quick point with him; the point has usefully and helpfully been advanced by the noble Lord, Lord Hodgson of Astley Abbotts. My amendment talked about "remuneration and other benefits". The regulations can deal only with information about remuneration. I am afraid that it is notorious that some of the chicanery that goes on today is with regard to benefits that some will say are not part of remuneration. In seeking to withdraw the amendment, as I shall do, I should be grateful if the Minister would consider, at the next stage, adding the words "and other benefits" after "remuneration" in his Amendment No. 74. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 31 [Community interest company reports]:

Lord Sainsbury of Turville: moved Amendment No. 74:
	Page 30, line 24, leave out from "Regulations" to "apply" in line 27 and insert—
	"( ) must make provision requiring community interest company reports to include information about the remuneration of directors,
	( ) may make provision as to the form of, and other information to be included in, community interest company reports, and
	( ) may"
	On Question, amendment agreed to.
	Clause 32 [Community interest test and excluded companies]:
	[Amendments Nos. 75 and 76 not moved.]
	Clause 38 [Conditions for exercise of supervisory powers]:

Baroness Turner of Camden: My Lords, if Amendment No. 77 is carried, I cannot call Amendment No. 78 by reason of pre-emption.

Lord Phillips of Sudbury: moved Amendment No. 77:
	Page 35, line 5, leave out "only to the extent necessary" and insert "proportionately and so as"

Lord Phillips of Sudbury: My Lords, I shall move Amendment No. 77 briefly. I think that it is quite clear what the amendment will do to Clause 38(1).
	My concern has been all along that the basis upon which the regulator must proceed, as it puts it here, is to,
	"adopt an approach which is based on the principle".
	Then, it goes on to say that,
	"those powers should be exercised only to the extent necessary to maintain confidence in",
	the community.
	We have previously made the point, or endeavoured to make the point, that "confidence in community interest companies" is a strange and difficult test for the regulators to assess in all cases. The point has also been made—we come now to the point of my amendment—that to say that he can act only "to the extent necessary" to do that is rather damaging to the efficacy of the regulator. This amendment, by saying that he must act "proportionately and so as" to maintain confidence, is a slightly less high hurdle than "to the extent necessary", and thus gives the regulator more scope. However, it provides a moderating factor by saying that he must always exercise his powers proportionately. That is the basis of the amendment. I beg to move.

Lord Glentoran: My Lords, I rise to comment on the amendment tabled by the noble Lord, Lord Phillips, and on my own amendment, Amendment No. 78, which is grouped with it. We discussed this at length in Committee. The central question is at what point and under what circumstances should the regulator be able to step in and take action in the case of a CIC? We have a new company model which, due to the nature of its public benefit objectives, necessarily has restrictions on it and must abide by a regulatory system. We have spent some time discussing whether the powers of the regulator go too far in interfering, or lack the teeth to be able to allow him to act effectively in the case of a failing CIC. What we are all essentially searching for is the right balance between these two.
	In this spirit, I have tabled Amendment No. 78 to query Clause 38(1)—the clause is entitled "Conditions for exercise of supervisory powers"—which says that the regulator's approach should be,
	"based on the principle that those powers",
	set out in Sections 39 to 48,
	"should be exercised only to the extent necessary to maintain confidence in community interest companies".
	I am at a loss to know what that really means. My gut instinct is that it allows the regulator too much leeway to interfere. The powers of the regulator are extensive under Sections 39 to 48. They include civil proceedings, appointing and dismissing directors and managers, transferring property to the official property holder and even dissolving or winding up a CIC. That can all be justified by the vague title of "maintaining confidence" in the CIC in question.
	I feel that the balance is wrong here. I support the call for proportionality which the noble Lord, Lord Phillips, advocates in his Amendment No. 77. I sense that the Minister might be slightly more amenable to his more subtle approach than my rather sledgehammer one. Our rather more bold amendment would remove the words,
	"to the extent necessary to maintain confidence in CICs",
	and insert the words,
	"in circumstances where a community interest company has contravened regulations or is at risk of failing".
	That is drawing the lines of intervention much more narrowly, perhaps too narrowly in the Minister's view.
	However, this is a vital section of the Bill and we need to ensure that it is drafted to allow the balance which I mentioned earlier. I ask the Minister once again, if he cannot agree or disagree with me now, or with the noble Lord, Lord Phillips—he may well disagree—to take the measure away and reconsider it to try to adjust the balance before Third Reading.

Lord Sainsbury of Turville: My Lords, we believe that both of the amendments in this group are unnecessary and may change the nature of the directions in subsection (1) as to how the regulator should act.
	As I said in Committee, Clause 38 provides the framework for the credible but light touch regulation of CICs. We believe that subsection (1) achieves this balance by placing a restriction on the regulator to exercise his powers under Clauses 39 to 48 only to the extent necessary to maintain confidence in CICs.
	Amendment No. 77 in part replaces this with a requirement that the regulator should use his powers proportionately. Common law already provides for powers to be exercised in a manner which is procedurally fair and not unreasonable or irrational. The requirement for decisions not to be excessively onerous, harsh or oppressive when less restrictive measures are available is part of the general requirement for reasonableness in decision-making.
	We consider that the common law, together with the other restrictions in the Bill on the exercise of the regulator's powers, should provide sufficient reassurance that the regulator's actions should be proportionate. The main element of this is the requirement that the regulator should exercise his supervisory powers only to the extent necessary. Therefore, we do not feel that it is necessary to include a reference to "proportionality" in this clause.
	The amendment also changes the way that subsection (1) directs the regulator to act. The Bill at present restricts the regulator so that he can use his powers only to the extent necessary to maintain confidence in CICs. The amendment imposes instead a duty on the regulator to exercise his powers so as to maintain confidence in CICs. This is a complete change of emphasis, that will enable, and even encourage, the regulator to be much more active in the use of his powers. It will also make it easier for the regulator to defend the use of his powers where challenged on the grounds that he was doing so in order to maintain confidence in CICs. The requirement for the powers to be used only where necessary to maintain confidence in CICs will have gone. This increases uncertainty for CICs as to the extent the regulator can act and what constraints there are on his use of the powers available to the regulator. This is not consistent with the light touch regulator that the public consultation asked for.
	Amendment No. 78 greatly restricts the circumstances in which the regulator could act except in cases where the CIC is failing, where instead the amendment appears to increase the regulator's power to act. In those circumstances where the regulator is able to act, the amendment has the effect of removing the requirement that subsection (1) places on him to take a light touch approach.
	The amendment would allow the regulator to use his supervisory powers only where a CIC has contravened regulations or is at risk of failing. The effect of the amendment would be to prevent the regulator using his powers when the CIC was in default but had not contravened a regulation under the Bill. It is entirely possible for this to happen in a situation where the CIC could not be considered to be failing. For instance, the regulator might have credible information that a thriving CIC was about to misuse its property by disposing of it improperly. In those circumstances the amendment would prevent the regulator acting even where it was apparent he should. This would fatally undermine the reputation of the CIC form.
	Turning to a situation where a CIC is failing, the first question the amendment raises is what is meant by failure in this context. This part of the amendment could allow the regulator to intervene in a very wide and unclear range of circumstances. For instance, would it allow the regulator to intervene in a CIC which is fully compliant with its legal requirements, but which is failing economically? If so, that would clearly be unwelcome.
	For these reasons the Government oppose the amendments to Clause 38.

Lord Phillips of Sudbury: My Lords, the Minister talks about a light touch being the principle behind Clause 38. A moment ago in response to the amendment that I put forward vis-à-vis excess remuneration, the Minister's response was that I should not worry as Clause 38 comes to my aid because the regulator can step in if there is excess remuneration. I do not see that his argument then and his argument now are consistent, particularly as the wording of subsection (1) of Clause 38 states,
	"to the extent necessary to maintain confidence in community interest companies".
	In the case of an individual company where gerrymandering of remuneration is going on, I do not see that the regulator would, on the wording in Clause 38(1), be able to do anything at all.

Lord Sainsbury of Turville: My Lords, I do not think that there is anything which is incompatible with having a light touch and being effective. The notion of "light touch" restricts the area, but that does not mean that it is not effective within that area.

Lord Phillips of Sudbury: My Lords, I do not think that the Minister addressed my point but I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendment No. 78 not moved.]
	Clause 41 [Civil proceedings]:

Lord Sainsbury of Turville: moved Amendment No. 79:
	Page 36, line 18, after "action," insert—
	"( ) the remedy sought,"
	On Question, amendment agreed to.
	Clause 42 [Appointment of director]:
	[Amendment No. 80 not moved.]
	Clause 44 [Appointment of manager]:
	[Amendment No. 80A not moved.]

Lord Evans of Temple Guiting: moved Amendment No. 81:
	Page 39, line 12, at end insert—
	"( ) The appointment of the manager does not affect—
	(a) any right of any person to appoint a receiver or manager of the company's property (including any right under section 51 of the Insolvency Act 1986 (c. 45)), or
	(b) the rights of a receiver or manager appointed by a person other than the Regulator."

Lord Evans of Temple Guiting: My Lords, in moving Amendment No. 81, I wish to speak also to government Amendments Nos. 82 and 87.
	In Committee I said that the Government would bring forward amendments to clarify the relationship between the company insolvency regime and the regulator's power, under Clause 44, to appoint a manager to a CIC. These are those amendments.
	It is an important aspect of our policy that the requirements of being a community interest company should not come into conflict with the contractual rights of third parties who deal with CICs, or with the protection which the insolvency law regime affords to the creditors of companies. As we said in Committee, we are grateful to the Charity Law Association for suggesting that we clarify this in certain areas of the Bill. We have already discussed government amendments to Schedule 5 to the Bill which address similar issues in respect of the official property holder.
	The issue which the amendments are intended to clarify is what happens if, following the appointment of a manager under this clause, the CIC becomes insolvent, or a lender with a right to appoint a receiver or manager of their own uses that right. Our policy is that the appointment of a manager by the regulator should not prejudice the rights of a lender, or anyone else, to appoint a receiver or manager. Furthermore, the rights and powers of a receiver or manager appointed by a third party should not themselves be prejudiced if the regulator appoints a manager. The first of our two amendments to Clause 44 spells out that position. It is also our policy that, where the regulator has appointed a manager under Clause 44, that appointment should terminate if a person is appointed to act as the administrative receiver, administrator, liquidator or provisional liquidator of the CIC.
	Our second amendment to Clause 44 would ensure that there was no risk of conflict or confusion between the role or powers of the regulator's appointed manager and the role of the various office holders under the Insolvency Act 1986. A manager appointed by the regulator should play no part in the insolvency of a CIC, as the officer holders provided for by the Insolvency Act are the proper persons to deal with such situations.
	Finally, we propose a consequential amendment to Clause 60 that defines what is meant by an administrative receiver in the context. I beg to move.

Lord Glentoran: My Lords, we welcome the explanation from the Minister and agree that it is entirely sensible to ensure that the regulator's power to appoint does not affect any right that a third party may have to appoint any receiver, liquidator or manager. We support the amendment.

Lord Phillips of Sudbury: My Lords, the Minister has ended on a crescendo.

On Question, amendment agreed to.

Lord Evans of Temple Guiting: moved Amendment No. 82:
	Page 39, line 16, at end insert—
	"( ) In particular, the Regulator must discharge the order on the appointment of a person to act as administrative receiver, administrator, provisional liquidator or liquidator of the company."
	On Question, amendment agreed to.
	Clause 54 [Fees]:
	[Amendment No. 83 had been re-tabled as Amendment No. 80A.]

Lord Evans of Temple Guiting: moved Amendment No. 84:
	Page 45, line 4, at end insert ", other than the provision of guidance which the Regulator considers to be of general interest."
	On Question, amendment agreed to.
	Clause 57 [Offences]:

Lord Evans of Temple Guiting: moved Amendment No. 85:
	Page 46, line 16, leave out "of this Act"
	On Question, amendment agreed to.
	Clause 58 [Orders made by Regulator]:

Lord Evans of Temple Guiting: moved Amendment No. 86:
	Page 47, line 4, at end insert—
	"( ) Where the Regulator makes an order or decision against which an appeal lies under or by virtue of this Part, the Regulator must give reasons for the order or decision to the persons entitled to appeal against it."
	On Question, amendment agreed to.
	Clause 60 [Interpretation]:

Lord Evans of Temple Guiting: moved Amendment No. 87:
	Page 47, line 32, at end insert—
	""administrative receiver" has the meaning given by section 251 of the Insolvency Act 1986 (c. 45)," .
	On Question, amendment agreed to.
	Schedule 8 [Repeals]:

Lord Evans of Temple Guiting: moved Amendments Nos. 88 to 92:
	Page 69, line 34, column 2, at end insert—
	
		
			  
			  "Section 245C(6)." 
		
	
	Page 70, line 4, column 2, at beginning insert—
	
		
			  
			  "Section 48(3)." 
		
	
	Page 70, line 8, at end insert—
	
		
			  
			 "Companies (Northern Ireland)Order 1990 (S.I. 1990/593(N.I.   5)) Article 48(2)(a). 
			  Article 49. 
			  In Article 56, the entry relating to "Director (in Schedule 14)". 
			  Schedule 14." 
		
	
	Page 70, line 12, at end insert—
	
		
			  
			 "Competition Act 1998 (c. 41) In Schedule 2, paragraph 3." 
		
	
	Page 70, line 14, at end insert—
	
		
			  
			 "Competition Act 1998(Competition Commission)Transitional, Consequentialand Supplemental ProvisionsOrder 1999 (S.I. 1999/506) Article 41. 
			 Enterprise Act 2002 (c. 40) In Schedule 25, paragraph 22." 
		
	
	On Question, amendments agreed to.

Horse Passports (England) Regulations 2004

Viscount Astor: rose to move, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 20 May, be annulled (S.I. 2004/1397) [10th and 13th Reports from the Merits Committee].

Viscount Astor: My Lords, I beg to move the Motion standing in my name. It is rare in this House to pray against regulations, and even rarer to pray with a fatal Motion, but I believe that the regulations should be annulled for four important reasons. First, they are unnecessary. Secondly, they are not supported by the industry. Thirdly, they are defective. Fourthly, they will lead to an increase in live exports of horses.
	The regulations are unnecessary for the simple reason that there is an alternative. It is not my alternative, but one put forward by the Government in their original consultation paper. When we debated horse passports last year on 2 June, I pointed out that the Government's proposal to make every horse and donkey have a passport—nearly 800,000 of them—would cost, by Defra's own admission, £17.5 million.
	European decision 2000/68/EC—it is a decision rather than a directive—requires passports only for horses or donkeys that will go into the food chain. It is based on the reasonable assumption that we do not want people eating horse meat if the animal has previously been treated with possible harmful drugs. It does not require passports for all equines. Interestingly, no passports are required for pigs, sheep, ducks or chickens. Cattle have passports, but only for traceability and subsidy reasons. The passport has no record of what drugs may have been administered to that animal. According to the Public Accounts Committee, however, one in five—1.2 million cattle—is officially missing. "Chaos" is the word that it uses to describe the current system.
	What was Defra's own alternative with regard to horse passports? It was a simple solution, requiring passports for only those horses to be slaughtered for human consumption. The Government's regulatory impact assessment published on 27 March last year stated that such a scheme would cost only about £300,000 a year. We do not eat many, if any, horses in this country. Under the proposal, horse, pony and donkey owners will have to state in the passport whether their animal can enter the food chain when they come to dispose of it. About 179,000 horse passports have already been issued by 73 different organisations. For those horse passports already issued, 95 per cent of owners have already stated that their animals are not destined for human consumption.
	In our debate last year, the Minister failed to explain adequately why his own alternative second proposal should not be implemented. Its first offence was that it was not favoured by the industry, but that claim does not stand up to scrutiny. Defra received 47 responses to its consultation, and only four respondents agreed on "passports for all".
	The British Horse Society agreed to that because it thought that it would be the only organisation handing out passports—it had a financial incentive—and that the Government would contribute to the cost of the scheme. The British Horse Society was misled. Although it feels that some of its concerns have been met, that organisation is entitled to its views. However, most other representative bodies do not agree.
	Under the scheme, 73 organisations will be able to hand out horse passports, so there will be 73 separate registers. That is a recipe for total chaos. It will not improve breeding, as those who need stud books already have them. Racehorses already have passports because their owners can afford them. Thousands of people who can only just afford a horse or a pony will be hit by unnecessary cost—the riding schools, the horse charities and such people. Nor will passports discourage theft, as the Minister for Rural Affairs, Alun Michael, has claimed. All that will happen is that more horses will be found abandoned. Micro-chipping every horse might make a difference to the Government's scheme.
	Theoretically, vets will be able to treat horses without passports if it is lost, mislaid or left at home. But the vet will have to give to the keeper of the horse a note to put in the passport at a later date. Will the Minister confirm how that will operate? Is this not certain to lead to abuse? Will the Minister confirm that there will be no restrictions on the medicines that are currently used for horses which are not to be slaughtered for human consumption?
	The report on the regulations by the House of Lords Merits of Statutory Instruments Committee concluded:
	"The Regulations are drawn to the special attention of the House on the grounds that they give rise to issues of public policy likely to be of interest to the House; and that they may inappropriately implement European legislation".
	I have never read a steer which was clearer than that.
	The Minister's second line of defence was that he did not agree with the report. Indeed, he wrote to me and the committee on 29 June, quoting directive after directive which his officials had, seemingly, just discovered. I have to say that his letter contradicted his department's earlier advice.
	If the regulations are passed many more horses, ponies and donkeys will be transported over long distances, often in unacceptable conditions for many hours, with little food, no water or rest, finally to be slaughtered on the Continent for their meat. The British minimum values legislation has protected thousands of horses and ponies from leaving our shores for slaughter abroad. That protection is now under threat from the European Commission by the proposed animal transport regulations.
	Since the Minister first introduced the concept of passports, the change he made to allow owners to decide at a later date whether or not the animal should enter the food chain does not make any difference to the problem of the live export slaughter trade. The Minister, Alun Michael, claimed that there was no connection between horse exports and horse passports. For many horses that will mean, "Have passport, will travel".
	So what have our European neighbours done so far? Only France and Germany have implemented national passport schemes, but France has already had problems with unregistered horses and the Germans have experienced a new phenomenon—the forged horse passport. In Greece, passports are compulsory only for horses that compete in show jumping. There are no plans to extend the scheme to the thousands of donkeys spread across the country and the many islands. Could anyone imagine the Greeks putting their citizens in jail for up to two years for not having a donkey passport?
	When the Minister introduced the original regulations last autumn, they had to be withdrawn because they were defective. These are a little better, but not much. They still not only gold plate EU rules, but gold plate them with diamond studs attached. The regulations are unnecessary, wrong and expensive. There is an alternative. It is not my alternative, but the Minister's own alternative—only horses with passports should be presented at slaughterhouses for consumption. I urge the Government to think again.
	Moved, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 20 May, be annulled. (S.I. 2004/1397 [10th and 13th Reports from the Merits Committee].—(Viscount Astor.)

Viscount Falkland: My Lords, these Benches have a difficulty with the Motion proposed by the noble Viscount, Lord Astor. Although the matter has been put fully by the noble Viscount, a passport is simply a document that states whether a horse may be eaten—whether it will enter into the human food chain. That seems a reasonable requirement on the face of it.
	I have to say that I do not know why I am a spokesman on matters regarding horses. It must be because my party knows that I have had a bet or two on horses a few years ago and I have been put up to bat. I am interested in horses and I am interested in this debate. But the presentation on this matter seemed rather strange when it first emerged in Parliament.
	My first point is that calling the document a "passport" raised some questions in people's minds. There is always an emotional response in this country to the eating of horses. We do not really like it. We recognise that others do it but we rather despise them for it. However, as a part of Europe, it is something that we shall have to get over. Many different views and cultural attitudes are to be found in Europe towards food, among other things. Personally, I do not eat horses—at least, not knowingly. It is possible that my cat eats horses but I certainly do not.
	I do not carry my Benches with me on this, but I believe that a certain scepticism of draft legislation that comes from Europe is rather healthy, even if, like me, one is a strong European. Nevertheless, so far as we can see, Defra has done a great deal of work in tidying up these regulations. It has worked with many bodies and associations, some of whom still do not agree with the legislation, as the noble Viscount told us.
	We do not believe that requiring documentary proof of the existence, or indeed of the breeding and other necessary details, of horses is unreasonable. That is quite apart from the major question of the danger of drugs given to horses entering the food chain. I should be very interested to hear the Minister's response to the noble Viscount's denial of the effectiveness of passports in combating, for example, theft. Proper documentary proof of other animate or inanimate objects which can be stolen is a useful weapon against theft. That is the case whether we are talking about bicycles, cars, cats or dogs, which nowadays are registered voluntarily through micro-chipping. I believe that it is also a useful weapon against maltreatment and abandonment, particularly where animals are concerned.
	As I understand it, the guarantee of vital medicines is threatened by the absence of certainty in relation to whether horses are destined to enter the human food chain. Therefore, it appears to us that there is a real need for documentation in this area, and there does not seem to be any real alternative to what has now been put forward, and tidied up, by Defra and argued with the various bodies.
	I turn to the subject of the Pony Club and individual owners, who are worried about the cost and bureaucracy involved in complying with this legislation. I understand that the Pony Club has now been reassured that the expense need not be as great as was first envisaged. Perhaps the Minister can reassure us on that point. I do not know what the noble Viscount intends to do with his Motion, but at present it is not our intention to follow him into the Lobby unless, in the mean time, the Minister is not able to satisfy any important concerns that the noble Viscount raised.
	Perhaps the Minister can tell us why electronic tags or inserts have not been considered at this stage. I am very familiar with the kind of protection given to motorcycles. They carry a tag, which is put on to a computer database. The database is very easy to add to or subtract from and it gives a full and variable record.
	A further matter that puzzles me is why, when a passport is issued, the declaration of whether the horse is destined for the human food chain is delayed. I do not understand that and I do not believe that the noble Viscount mentioned that.
	Perhaps we, on these Benches, can be assured that this is not to be a complicated, bureaucratic and expensive process. We want to be assured that, by and large, there is consensus within the horse world that the fundamentals are sound and that the benefits will be, as I have indicated in the area of medicines, available without problems. I think they are described in many documents nowadays as equidae in Latin, which presumably includes donkeys. I have not heard of people eating donkeys, but there may be countries in Europe where people eat them. I see the noble Earl nodding.

The Earl of Onslow: My Lords, Italian donkey salami is rather a popular dish.

Viscount Falkland: My Lords, that is not a delicacy that I have had the pleasure of eating and I do not intend to seek it out. Perhaps I may leave the matter there. Generally, we are disposed to support the drift of these regulations. If the Minister can satisfy us on some of the points that I have raised and those raised by the noble Viscount, we would not be moved to join the noble Viscount in the Lobby, should he choose to divide the House.

Baroness Mallalieu: My Lords, I declare a personal and keenly felt interest in that I have 14 horses, eight of whom have passports and the remaining six have had forms of application submitted by the due date—last week—but only just.
	First, I ask the Minister how many horses, ponies and donkeys do the Government estimate are at present in this country. Secondly, how many have either had applications for passports submitted or hold passports? I suspect that there will be an enormous discrepancy. My impression, talking to fellow horse owners, is that this measure is widely regarded, on the ground—I leave aside the high flown bodies who represent horses in various areas—as an expensive and an unnecessary exercise and one with which a considerable number of otherwise law-abiding people are at present saying that they have absolutely no intention of complying.
	The explanatory notes from Defra—I totally accept them as being entirely accurate—say:
	"This measure is not expected to have any significant resource implications for Defra".
	They have had very considerable resource implications for me and for others like me.
	If one wants to apply for a passport, one can apply for a blue-chip, Weatherbys type passport, which racing thoroughbreds must have. For the youngest foal it will cost a minimum of £75 plus the cost of a vet's visit, plus the cost of blood-typing and micro-chipping. If one later wants to add a name to a passport, that will cost even more, taking the price to well over £100.
	Alternatively, one can go for one of the breed societies such as the Coloured Horse and Pony Society, where the passport is likely to cost about £20 or £40, but one will still have to pay for the vet's visit. I do not know how other Members of the House find their vets' charges, but mine are rather high; £50 a visit is fairly standard. That visit will be necessary to draw the profile needed for the passport.
	Alternatively, one can try, as I did with my last four horses—including Jubilee, aged 26, who I very much doubt will see out the rest of the summer, but for whom I have to send in a form—one of the cheaper horse passport agencies that say that they will provide one for £14. However, the vet still has to be paid £40 or £50 for the visit and the drawing of the profile. The poor girl who came to us the other day took an hour and a half and I have not yet had the bill, which I expect will be very substantial.
	The requirements have changed as the saga has progressed. It has not been well handled. At one stage, we were told that we could do our own profiles; we were told to get a clipboard, to mark—not on a windy day—all the whorls and rosettes on the horse, and that that would be acceptable.
	Then that changed, and the requirement became that we had to have a vet performing the profile and certification. The dates and deadlines have changed; the requirements have changed. Perhaps I may just tell your Lordships about the difficulty of getting hold of the relevant forms. I received some forms from my local tack shop and I rang Defra to ask if they were acceptable. I was told, "No, those forms have now been superseded. You need some new ones. We will send them to you". That was nearly two months ago, and I am still waiting.
	I then went to my vet, whose receptionist told me, "Well, I think that we have some forms; we will send the vet out to do the job". The vet arrived, saying, "Where are the forms? We do not carry them. You must get them yourself". That was a wasted visit, for which I shall be billed on my large veterinary bill. I managed to get some new forms, this time from a pet shop. The vet eventually managed to complete them and I sent them off, complete with the now substantial cheque. I do not know where are the reassured members of the pony club to whom the noble Viscount, Lord Falkland, referred, but if they can find a way of doing that any more cheaply than I have, I should very much like to meet them. I can quite see that there is a benefit to the horse population of having a national horse database. It should have every horse in the country on it, and then it would of course be enormously beneficial in a number of different ways—not least for horses that are lost, stolen or strayed. But I would like to know from the Minister whether it is intended that the national horse database should carry each of those profiles that people up and down the country have been doing either themselves or, more recently, with their vets, and whether it would therefore be possible to check out a horse on the profile database. I suspect not. I suspect that the profiles will be held by each of the 75 different organisations and that the chances of the lost horse being returned to its owner through the use of any national database is slender indeed.
	Indeed, such a database could really work only if each horse was obliged to be either microchipped or freeze-branded, but that is not proposed—it may not be proposed for reasons of expense. I must say that the figures in the Explanatory Memorandum, which I collected from the Printed Paper Office today, for the cost of microchipping horses, must have been created in fairyland. They bear no resemblance to my knowledge of the procedure. Nor, I must say, is the procedure as easy as the noble Viscount, Lord Falkland, suggested. As he has had to wrestle with even quite a young foal to carry out that operation, and, sometimes, has been unable to lay a hand on it afterwards for a considerable time, he will appreciate that microchipping a horse is far more difficult than carrying out such a procedure on a small dog.
	It could have been valuable if each horse were on that database and had some means of being traced. We are told that the passport system is necessary for breeding. Of course, it is now compulsory for thoroughbred horses. It is increasingly used by breed societies and for competitive horses. In those cases, people voluntarily get their passport because there is a financial benefit to them if they come to breed horses and sell them later. But what is the benefit, in terms of breeding, to six of my 14 horses, which are geldings? Their capacity to play any part in the national horse breeding programme has been severely compromised in a way that no passport can make good.
	I readily accept that human consumption requires that there be some means of confirming whether animals have been treated with drugs and, if so, whether the withdrawal period for animals is either not established, or that it has been established but there is uncertainty about whether they were administered in the set time. In the absence of doing a proper job, which would have required the microchipping of everything and a comprehensive database, I can see a real argument for having passports for animals that are sent for slaughter for human consumption—the scheme that the Government considered but rejected. That is not the route that we have chosen to go down. Not by any means all people, but many people have already expended a great time of time and money in trying to comply with what the Government are now bent on.
	If the matter is pressed to a vote, I shall not vote against the regulations, but it is a great pity that what could have been an opportunity for the horse world to see the introduction of this as something that would be of advantage to them, and also a means of advancing horse welfare, has been lost.
	I raised this matter before when we dealt with horse passports. One of my greatest worries is what happens to old and unwanted horses after 28 February next year. From that date, no horse may be submitted for human consumption without a horse passport. If you have an old and unwanted horse and only limited funds, you have no other means of disposing of that horse if you cannot sell it for human consumption. You can pay a knacker, who will charge you, in my experience, something in the order of £150; or, if you are fortunate, hunt kennels will charge something in the order of £50. I know of no other way in which such horses can be disposed of, and no way in which they could be disposed of without cost to the owner.
	Like the noble Viscount, Lord Astor, I fear that a large number of unwanted horses will be abandoned. What contingency plan are the Government putting in place to deal with the consequences of this legislation? Will it simply be left to the equine charities? Are the Government making provision to deal with the consequences of the steps that they are taking?

The Earl of Onslow: My Lords, I declare an interest in horses. I have certainly bought more Mercedes for veterinary surgeons than practically anyone else on this Earth. I drive ponies, of which I am inordinately fond, because it allows me to show off in a completely harmless way, albeit sometimes making quite an idiot of myself.
	We must have passports for our ponies, because that is the rule of the society in which I play. That is perfectly fair. There is a British Horse Driving Trials Association passport, and there is also a Fédération Equestre Internationale passport, if one wishes to participate in any form of international event. No one objects to that—because I volunteer to do it, I know what is happening when I do it, and I know that that is one of the consequences of it.
	The last time that this subject came up, I surmised that the whole of this performance was the fault of Napoleon's Army eating their horses during the retreat from Moscow. I have since read Adam Zamoyski's excellent book, which shows the incompetence of both the Russians and the French. It underlines exactly my theory that this whole business started in the retreat from Moscow in 1812.
	I was slightly shocked last night when, having dinner at my club, a distinguished retired servant of the club asked whether, for a special dinner, he could have horse tartare in the Garrick club. The chef replied, "It is illegal to eat horses in England". The chef's knowledge of EC regulations is not exactly thorough, but I will gloss over that. We have arrived at the position where there is horse-eating about.
	Is it not odd that we do not have to keep a record of drugs in cows, pigs, or sheep before they go to slaughter, but for some reason we do have to for horses? Does anyone imagine that every single Gypsy horse at the Appleby horse fair will have a passport? Does anyone think that the horses running around in some of the grottier parts of Dublin will all have passports if the Irish Government introduce them? I concede, of course, that the Act of Union has been repealed.
	The noble Baroness, Lady Mallalieu, also asked very valid questions. How many horses are there? How many passports have been issued? I was informed that the Swedes have produced a survey on the number of horses and they say that there are 700,000. I believe that we say that there are 400,000 horses. So who is right? Why the Swedes should want to do a survey on English horse numbers, I do not know. But it appears that they have, and they are a thorough people.
	This is all bureaucracy, regulation and red tape. Surely, we must start saying "No" to these measures. They are unnecessary. The noble Baroness, Lady Mallalieu, perfectly reasonably and accurately produced the costings. The idea that it will cost just £17 or whatever is ridiculous. As she said, vets have to come out and it will cost a great deal more than that.
	My noble friend Lord Astor mentioned the idea that all the Greek donkeys will get passports. That is ridiculous. Why do we have to do this? Why do we have to go on imposing regulatory burden after regulatory burden when others do not?
	It also strikes me that it is nothing to do with the Government whether the breed societies get their acts together. That is up to the breed societies. It is nothing to do with the noble Lord, Lord Whitty, whether my driving ponies are inoculated. That is to do with the society. It is nothing to do with government. It is to do with us who want to play with our toys without interference from government. This Government have got an itch to do things. Mark you, I accept that their predecessor had mild dermatological problems too. But this Government are far worse. Regulatory passion ought to be resisted. I hope that we can throw this out. It is time that we called a halt to this regulatory passion for no possible or conceivable reason.

Lord Jopling: My Lords, I very much endorse the final words of my noble friend Lord Onslow, to which I shall turn later. I declare an interest of never having owned a horse in my life and—dare I say?—never having particularly wanted to because they bite at one end and kick at the other, which does not seem a good idea.
	We have heard remarkable speeches from my noble friend Lord Astor and the noble Baroness opposite who put the case against all of this bureaucracy in the clearest possible way. But it is not from that position that I want to express my extreme depression at the Government's actions. I am depressed for different reasons.
	Of course, the thought of donkey licences is a joke. There is an old story from the north country that says there are two things in life one never sees and one is a dead donkey. I do not know how many of my colleagues in your Lordships' House have ever seen a dead donkey. I certainly have not. The other thing that one never sees is, of course, a satisfied farmer, which I remember, to my cost, was very much the truth when I was Minister of Agriculture many years ago.
	What depresses me so much about this measure relates to part of the 10th report of the Merits of Statutory Instruments Committee, of which my noble friend Lord Ullswater and I are members. Paragraph 2 explains that an Explanatory Memorandum accompanying the regulations states that there are two policy objectives. The second policy objective upsets me. It is,
	"to protect and enhance the trade in pedigree horses: the identification of pedigree is one of a series of measures aimed at harmonising the registration of such horses in equine studbooks".
	Here I come to the final words of my noble friend Lord Onslow. I agree strongly with him that the Government should not become involved in the business of pedigree.
	Of course the principal area of pedigree in the horse world is the closed shop which operates in the breeding of thoroughbreds. It is a totally restrictive practice. The breeders of thoroughbreds are not allowed to use modern breeding measures such as artificial insemination or embryo implants. Their restrictive practices forbid such measures. I do not know whether it is organised by the Jockey Club, Weatherby's or other bodies. While I draw attention to it, if that is the way people want to conduct the breeding of thoroughbreds, it is all very well.
	What really depresses me is the continuing practice—something I thought we had got rid of—of government involving themselves in the cult of pedigree. In this noble company, surrounded as I am by a Duke, two Earls, a Viscount and two hereditary Barons, who I am to criticise the cult of pedigree? However, I say immediately that I am talking about horses rather than two-legged creatures. I hope that I shall not cause offence.
	When I was a student, the great Professor Boutflower of the Royal Agricultural College was asked by one of his students about pedigree. He responded by saying contemptuously, "Pedigree, my boy, goes in at the mouth", meaning that it is how animals are managed and bred, rather than pedigree itself which is important.
	When I was first elected in 1964 to work in this building, in another place, one of first things I recall doing with agricultural legislation then going through Parliament was to move amendments to a Bill in around 1967 to abolish bull and boar licensing. I remember the fury aimed at my head when I attempted to say that it was genetic nonsense to tell farmers that they could use only a bull or boar which some government inspector had come out and examined and said whether it was suitable for breeding. As I have said, that was genetic idiocy.
	Much fury was aimed at me by a constituent of mine in the Lake District. He rang and threatened me with all sorts of savagery if I continued to threaten the then Hereford Herd Book Society by saying that bull licensing ought to be abolished, even though bull and boar licensing were restrictive practices. Despite that, I am glad to say that when my noble friend Lord Prior became Minister of Agriculture in 1970—I had the honour of being his Parliamentary Private Secretary—he took the first steps to abolish such licensing. I think I am right in saying that I finally completed that abolition when I was Minister of Agriculture between 1983 and 1987.
	I do not object if pedigree societies want to continue to do their thing, but the enhancement of pedigrees and the cult of herd books and stud books is not a matter for government. They should have nothing to do with it at all. If people want to keep up their pedigree societies, then that is fine—let them do so. But, please, do not let the Government get themselves involved in something that is none of their business.

Viscount Ullswater: My Lords, I am grateful to my noble friend Lord Astor for allowing us to debate these regulations today. I declare an interest in that I am a member of the Merits of Statutory Instruments Committee. However, I want to make it clear that I do not speak on behalf of the committee but entirely as a mere Member of your Lordships' House.
	The committee's 10th report draws the special attention of the House to these regulations on the grounds that they give rise to issues of public policy likely to be of interest to the House, and that they may inappropriately implement European legislation. The fact that these regulations have been prayed against by my noble friend is a clear indication of the first ground, but I should like to concentrate my remarks on the second ground.
	In the 13th report of the Merits Committee, a letter from the right honourable Alun Michael MP, the Minister of State at Defra, has been published refuting that the regulations may inappropriately implement European legislation—my noble friend Lord Astor has mentioned that he received a copy of that letter—quoting particularly directive 90/426/EEC of 26 June 1990 and the Commission decision 2000/68/EC.
	Article 1 of the directive states that,
	"this directive lays down animal health conditions for the movement between Member States and import from third countries of live equidae".
	The letter from the Minister quotes Article 2 extensively and draws from it the conclusion that, effectively, all "equidae for breeding and production" are covered by the directive.
	That may be so but, in my opinion, it does not cover horses that are not used for "breeding and production" and those that are not travelling between member states. The directive and the decision both qualify horses in some way—one for movement and the other for breeding and production.
	As the noble Baroness, Lady Mallalieu, indicated, it is the huge number of horses, possibly some 800,000—the mean point taken from the Explanatory Memorandum of between 600,000 and 1 million—which are not used in competitions, shows, breeding or for production and will require passports at a cost of about £20 each that these regulations cover. I submit that this is not required by European legislation.
	Is the elderly gelding living in his field in Yorkshire or Wiltshire, for example, used as an occasional hack, to be classed as an "equidae for breeding or production"? He is certainly no use for breeding, as the noble Baroness has indicated, and as he will not be travelling abroad or competing, he cannot be classed as "for production". The industry therefore is being forced to spend £16 million on this regulation, as my noble friend Lord Astor said, when it is not necessary. That is why I believe that these regulations may inappropriately implement European legislation.
	I have examined the transposition notes for the decision 2000/68/EC, and they refer only to animals for "breeding and production". The regulatory impact assessment attached to these regulations canvasses two options, which, in my mind, indicates that the Government recognise that there could be a less expensive way forward but have not chosen to go down that route. They have decided that, because there could be a legal challenge from the European Commission for not implementing the measures fully, they must opt for blanket coverage.
	As noble Lords have said, the 200,000 horses that are used for breeding or in competitions will need passports. The 2004 regulations, which are a great improvement on the current 2003 regulations, cover those requirements. There is ample evidence to show that many horse organisations have expressed their support for them, so I am not prepared to vote against them tonight.
	This is a food safety measure, in essence. I agree that medicines given to horses should be entered into a passport, and that only horses with passports should be able to enter the human food chain. Nothing I have said this evening contradicts that in any way.
	One final point—it is useful to know that the Government are to set up a central disease surveillance register for equines. But are they prepared to put any money forward to construct a national equine database, with information supplied by all the passport-issuing organisations? The information gathered by these organisations can be of great use to the breeding of competition horses, as the racing industry has already proved.
	If we are to have all 1 million horses in this country issued with their unique lifetime number and a passport, let us at least put all that data to good effect.

The Earl of Onslow: My Lords, before my noble friend sits down, can he help me? If, as he says, half of the horses are outside the regulations, does it follow that the regulations are illegally made? Presumably, the European Communities Act 1972 says that Ministers shall, by order, implement directives. If they produce a regulation which is outside the directive, as my noble friend implied that part of this was, the directive must be illegal. Will he comment on that?

Viscount Ullswater: My Lords, I would very much like to hear what the Minister has to say about my assertion that the directive and the decision talk about only part of the horse population—those that are due for movement and those that are due for breeding and production. My noble friend Lord Astor said that he believed that the regulations were gold-plating European legislation. I believe they are too.

Lord Selsdon: My Lords, if I may, I shall approach this in a slightly different way. We are concerned about proof of identity and proof of good health. While I am a biped, and there are quadrupeds and others, I refer to what happened yesterday, when I went to see if I could prove who I was. I had an iris scan and a fingerprint test, and I got a new card. For some reason, the photograph did not recognise me and the iris scan would not work. It took 20 minutes, because I was fairly tired and I think I had hooded eyes. Two of my fingerprints did not work because I had been working in the vineyard and they were rather worn.
	I wondered whether this Bill was a question of proof of identity or of conforming to other people's wishes and demands. I have spoken on this subject before. When I returned from the United States at the end of the war, I was put in charge of transport by my grandfather. Transport was a Welsh pony called Misty and a carthorse called Rose. We did not have any petrol, we had an elderly tractor, but I worked out fairly quickly that if we swapped eggs with American forces, we could get petrol for the tractor and I would not have to stand behind Rose all the time.
	Years later—and I have declared this interest before—with some surprise and reluctance, I became a peasant farmer in France, with a small vineyard, where we have the same problems. Proof of identity becomes particularly important because often, in order to prove one's identity these days, one's passport, as a human being, is inadequate. One has to produce a bill, maybe a utility bill. One also has to produce a birth certificate. For those of us who suffer from an accident of birth and began our life with a different name—one's father was not, at that time, called a Lord—there is considerable difficulty.
	If we are looking at proof of identity, we have to say why. In general, as your Lordships will know well, we do not eat horsemeat in this country, although we may eat bushmeat. Those on the continent of Europe, particularly in countries around the Mediterranean and the ancient world of Provincia, are very concerned about being able to eat horsemeat. I have to admit that, by mistake, over a long period of time, in a rather smart restaurant, I would like hamburger à cheval. I had no idea that it was horsemeat. I thought that it was a particular type of hamburger, designed by the French, which went with a particular type of sauce that gave it a slightly sweetened flavour.
	During that period, I learned other things. The noble Lord, Lord Whitty, will remember that I have asked about the number of horses in Britain before. My noble friend Lord Onslow got it slightly wrong. The original estimate was that we had had maybe 420,000 horses in the United Kingdom—exactly the same as Australia. I learnt that when I was chair of the Greater London and South East Council for Sport and Recreation and received a letter regarding 1,000 horses in Harrow.
	Later studies, particularly Swedish studies, showed that we perhaps had as many as 900,000 horses, not 1 million as has been quoted this evening. Could the Minister determine exactly how many horses we believe we have in comparison with the population of the United Kingdom?
	If it is the case that we have 900,000 horses, the reason for introducing a horse passport is to stop unacceptable edible food entering someone else's food chain. I digress briefly to point out that foot and mouth disease has been perhaps more rife on the continent of Europe than many of us had believed in the past.
	I return briefly to one of my favourite subjects and one of the Government's successes—Passports for Pets. That has been extremely well received. Your Lordships will know that one may move dogs without let, hindrance or encumbrance across the Channel. Eurotunnel has a wonderful set-up, with a nice piece of grass where one's dog may go and lift its leg before it comes into the United Kingdom. However, when one's dog or dogs arrive in the United Kingdom, there is not a single place that is willing to receive it—hardly a hotel in London, hardly a restaurant; indeed, hardly a place.
	Within the regulations that were devised to inoculate against rabies, little inconsistencies occurred. If one's dog is a continental dog, under continental law, it has to have a rabies injection every year. If it is a British dog, it has to have a rabies injection every two years. Therefore, one finds that the legislation that applies on the Continent to rabies can prevent one's dog coming into the United Kingdom because it conflicts with United Kingdom legislation.
	Before discussing horses or any animal, I shall take a moment to explain what happens to donkeys. Those of us who produce vines and grapes will remind your Lordships that one of the greatest benefits to cultivation is a dead donkey. If one is producing table grapes, the best thing one can do is to bury a dead donkey around the root stock. The dry blood within it will produce excellent table grapes, preferably black rather than white. That is what is done throughout most of Spain.
	However, we have not spoken about that other animal which I used to think meant slippers; namely, the mule. Is the mule covered by this legislation in any way? It is neither a gelding nor even neuter. It is a particular type of animal which is still in use in many parts of the world.
	We should not support the concept of British horses being exported to be eaten by other people. That is an emotional issue that many of us would find hard to accept. I say that with a certain personal passion because one of my family names is McEacharn, which means "Lord of the horse"—the horse which came before the ships. I have always found that, although I have sea horses on part of my coat of arms, I have a great affection for the horse as a noble animal.
	When, in preparation for earlier debates, I wanted to know why the continent of Europe was so keen on eating horses—my noble friend Lord Onslow referred to it briefly—I found that it is all to do with war. Troops who were underfed, not least those under Napoleon, would find that when their horses were shot from under them, although they may have been their noble steeds, they were often all that they had to eat. That happened during campaigns towards Russia and everywhere else. The original design was not to eat a noble animal, but to meet the necessity of food.
	I do not oppose the concept of identifying horses, but, in my capacity as Joint Secretary of the Parliamentary Space Committee, I have another method to suggest.
	Within a relatively short space of time, when Galileo gets off the ground, it will be possible despite what the noble Baroness opposite has said, to microchip a horse or any animal, whose movements can then be identified from space. All that information can be retained on a small microchip. One of my Italian friends in Eutelsat was explaining that that situation was not so far away, and that one would know that wherever one had put a chip that person was. He did actually make a comment: he said that if your Lordships still had mistresses, it would be possible to know where they were because the chip would be in the diamond earrings. I asked him how we would know where the diamond earrings were, because they would normally be pawned. But my friend's point was that it was not very long, in relation to biometrics and other items of technology, before we would be able to identify on the face of this earth any creature, or any thing, without the necessity of having to have pieces of paper that could be forged, duplicated or copied in numerous ways.
	Anything that encourages the export of live horses from this country to the continent for eating purposes should be opposed.

The Earl of Liverpool: My Lords, it was not my intention to contribute in this debate, but there are certain things that I have heard—not least the interesting and captivating comments of my noble friend Lord Selsdon. It is always a pleasure to follow him. Those remarks have moved me to get on my feet.
	My noble friend Lord Astor said that 73 separate registers would be charged with maintaining the control in the regulations. As he said, that is an absolute guaranteed recipe for disaster. It always moves me to get on my feet when someone talks about regulations being gold-plated by this country. As my noble friend Lord Astor said, this is not gold-plating but diamond plating—or I believe that those were his words. That seems to me to be a grave error.
	The noble Baroness, Lady Mallalieu, drew attention to the risk that some owners may abandon their horses to avoid the burden. Other noble Lords referred to that, too. I shall repeat one of the committee's concerns. It said:
	"However, the Committee is aware of continuing concern that the Regulations may represent a significant additional cost and compliance burden for many horse-owners, and that there is a risk that some owners may abandon their horses to avoid this burden".
	It is for those reasons that I strongly support my noble friend in his prayer.

The Duke of Montrose: My Lords, I can declare only a very dated interest in that I last had dealings with a horse when I sold the children's pony at an auction sometime back in 1980.
	My noble friend Lord Ullswater, as a member of the Merits of Statutory Instruments Committee, drew our attention to its 10th report. Noble Lords will be familiar with some of the words used in that report, which said that the regulations,
	"may inappropriately implement EU legislation".
	Since then the Minister, Alun Michael, has replied to the committee, and his letter is included in its 13th report. His letter appears to make it clear that directive 90/426/EEC divides horses into three categories for registration, the first two of which will certainly require to be registered. His letter said that horses for breeding and production are required to be identified during movement. Am I right in assuming that that provision, if strictly adhered to, would mean that they must be identified only during movement—or at least during the first occasion during which they are moved? To my mind, that is similar to the regulations that I am familiar with in respect of sheep movement, by which sheep are required to be identified only when first moved.
	As noble Lords have heard tonight, the industry itself is very divided in its view between commercial and purely recreational interests. The noble Earl, Lord Onslow, gave us a very good description of the enjoyment to be found in recreational interest. However, the Government appear to favour an approach of total registration of all horses. The noble Baroness, Lady Mallalieu, gave us some detail of the cost to individuals of registration—not only the licence costs but the costs of getting a vet. One has heard of vets charging well above £40 a time. One has perhaps heard of some who charge a little less but it is still a very considerable cost for anybody with a handful of horses.
	I would like to know whether the Government have figures on the cost of maintaining this information. As far as I understand the layout of the papers attached to the statutory instrument before us, these documents will have to be resubmitted every time there is any change in the details of ownership. I can see one or two difficulties. I may not be as fully up to date technically as my noble friend Lord Selsdon on the matter of microchips. I know that we have been weighing up the question of using them in cattle and I have been told that in order to read those presently used one has to get within six feet of the microchip in order get a reading on a sensor. The reason for that is that if the power of the microchip were any stronger it would tend to interfere with aircraft direction systems and that would create too many problems.
	In the notes, and in the Government's animal health and welfare strategy, the creation of a horse database is mentioned. It seems to me that perhaps this statutory instruction is a precursor to any legislation that may be required. Can the Government tell us whether they envisage more regulations before the database is implemented?
	It begins to look as though there will eventually be two levels of registration. One will be the level carried out by the breed societies that wish to have their own authority on the certificates that are prepared for pedigree horses and the other will be the Government's database. I wonder at the Government's appetite for registration and databases. My experience is largely based on dealings with the cattle database, which is presently costing £32 million per year, which is very generous of the Government. Noble Lords are probably familiar with some of the data that emerged from the Public Accounts Committee a couple of days ago. It produced a long list of the difficulties presently being experienced by the centre at Workington. Back in January, when I last looked into how it was doing, I was told that the office had to call back 10,000 applications a week that required correction or reregistration. The net effect was that there were 6,500 calves in suspense. That creates a problem when one is trying to follow up a policy of traceability.
	As the noble Baroness, Lady Mallalieu, and other noble Lords mentioned, as far as the industry is concerned, it is surely only the breeding horses that require registration. By the law of averages, under half of the horses now kept are geldings and unlikely to breed, so the benefit to them is very limited. The question that arises much more is identifying those that can be eaten. It is probably more up to those who own horses to expound on the most satisfactory method of doing that.
	I am puzzled about the question of controlling disease through the national database. Using the current data, all one will have is the name and address of the owner and no data on where the horse can be found or where it has been recently. In the first instance, one will have to find the owner, if he is not on holiday or has not put himself out of the way in some way. Are the data that are presently asked for in these passports the only data that will be used for the database? Will a raft of modifications not be brought in once the new scheme is up and running? Can the Minister say whether the Government have considered bringing this legislation in once they have got the answer to their whole animal health and welfare strategy?

Lord Whitty: My Lords, noble Lords and the Committee on Merits of Statutory Instruments had a lot to say about this lot of regulations, and not a lot of it favourable. I am not going to agree in principle with many of those comments. However, I do not think that we are in a particularly satisfactory position here. I certainly accept that we are not starting from where we would like to be.
	We are dealing with an EU directive that, as noble Lords said, is driven primarily by food safety. Although consumption of horsemeat in this country is probably close to zero, British horses can be exported for horsemeat. The directive may be desirable from that point of view. Part of the Government's case is that the directive has other desirable features, but it is not driven by those. Therefore, the way in which people regard these regulations is somewhat distorted by the original purpose.
	We are dealing also with the fact that our first attempt to turn the directive into regulations proved to be flawed. We therefore have to correct that today. That is not particularly satisfactory, and I am not pretending that it or any of the other administrative problems referred to today are satisfactory. In an ideal world, if we were convinced that we needed to go down this road, we would probably look at something closer to microchips. Indeed, there may shortly be an EU proposal in exactly that direction. However, we are where we are. We have a European directive that we have to transpose. We have attempted to do so once and we have to put right what was wrong with the previous regulations. That is all we are doing tonight. I want to emphasise that.
	If the prayer of the noble Viscount, Lord Astor, were carried, the effect would be that the existing regulations would stand. That would be an unsatisfactory position for many reasons. If you like, the Government stand guilty in relation to that position. Although it was not entirely clear in our previous debate, there was a lack of clarity in definitions for the passport itself and the issuing bodies and in identifying the enforcement authorities. In the light of the special arrangements that have subsequently been made in relation to the New Forest and Dartmoor ponies, the previous regulations would not have been appropriate. There is other defective wording relating to passport issuing organisations, the allocation of life numbers and so forth.
	So there will be problems if we revert to the pre-existing regulations by deleting the ones before your Lordships' House tonight. There is also the problem of the 30 June closing date. Were we to revert to the pre-existing regulations, that would at least theoretically put people beyond the law. That would be the effect if this prayer were carried tonight. I do not believe that that would be in anyone's interest.
	As for the other comments made this evening, I think that some of them were misplaced. I think that the noble Viscount, Lord Astor, was probably wrong on all four of his main counts against the regulations. He said that they did not have the support of industry. One of the benefits of the consultation and the two alternatives we put during that consultation was to clarify the industry's position.
	The key operators within the industry—the British Equestrian Federation, the British Horse Society, which itself covers several other organisations, especially the British Equine Veterinary Association, the International League for the Protection of Horses, the RSPCA and other bodies and organisations representing the veterinary, sporting, owners' and breed interests—have all supported the principle of how the Government are legislating. Far more supported that principle than objected to it. Far fewer organisations, such as the Riding Schools Association and some charitable organisations, were opposed to the principle, although most of the passport issuing bodies have now made special arrangements for charitable organisations.
	There is also a question of implementation. There was an alternative that I shall come on to in a moment. However, the interpretation we have taken has been taken also by most of our colleague member states. France, Germany, Ireland, Sweden, Finland and Denmark have already implemented and have done so on the basis of a full passport system. It is true that some other countries have not yet done that or have taken the other alternative, but there are special reasons why—apart from the strong support of industry—we in the UK have taken the overall registration option. One of those is to ensure that there is continued availability of veterinary medicines for horses—something which has not been alluded to during the course of this debate and is perhaps tangential to the original purpose of the regulation.
	The terms "gold plating" and, indeed, "diamond plating" have been banded about tonight. Given that the European Union presents us with two alternatives and we are taking one of those alternatives, I do not think that can generally be described as gold plating. Gold plating usually involves an excessive burden on industry. Given that the bulk of the industry is strongly supportive of these proposals, I do not think that they can legitimately be described as gold plating. We have implemented the measure building on the experience of the large number of private bodies that are already operating an identification or passport-type system. That has not involved an increase in state bureaucracy but has built on the experience of private organisations which have voluntarily started down that road.
	I should like to say a few words about vital equine medicines.

The Duke of Montrose: My Lords, the Minister said that the EU had offered two alternatives. According to the letter that Alun Michael sent to the committee it seems to me that the directive offered three categories that require registration. It seems to me that the Government have chosen a blanket registration policy rather than the specific policies that were contained in Directive 90/427/EEC at Articles 2C, 2D and 2E.

Lord Whitty: My Lords, the directive itself provides for the blanket operation. We have chosen that option for reasons that I shall explain and which have the full support of the vast majority of the representative organisations within the industry. That was also the interpretation of the majority of those countries which I cited earlier. The measure is, therefore, not outwith and on top of the directive, which is the normal use of the term "gold plating".
	Returning to the medicines point, the president of the British Equine Veterinary Association said:
	"This legislation is a means to guarantee the continued availability of vital equine medicines in the UK".
	I refer to another development at the European level; namely, that the Commission wrote to member states asking them to withdraw marketing authorisations of all veterinary medicine products licensed for use with horses containing substances not included in specific annexes to a further Council regulation, the details of which I shall not bore your Lordships with. Some 60 per cent of medicines currently authorised for horses would have fallen within that category. We opposed that measure in the European Council because the system of prescribing within the UK and Ireland is somewhat different from that in the rest of Europe but our views did not prevail. There have been amendments to that measure. One of the amendments would mean that the registration of horses would enable our present system of veterinary medicine prescribing to continue largely in its previous form. Therefore, the provisions that are before your Lordships tonight are directly linked to the veterinary issue. One of the reasons that we and the majority of the industry are in favour of a general registration is to ensure that the system of veterinary medicines continues.
	The president of the association considers that,
	"There is no credible alternative solution to the threats to the availability of medicines that were or are currently in sight apart from this registration proposition".
	It has been suggested that if we required only horses going to slaughter for the human food chain to have a passport, that would not meet the veterinary point. However, it is also evident from reading Decision 2000/68 and from the way that it defines the terms "registered" and "for breeding and production purposes" that all equines are required to have a passport if they are to benefit from those provisions.
	The industry sees other benefits, including opportunities to deter the indiscriminate breeding of horses. That is one long-term benefit, because it will reduce the degree to which there are abandoned horses and the welfare problems with that. I do not deny that there may be a short-term welfare issue, but that exists already. We and the welfare organisations need to monitor the situation to see whether there is any increase in abandonment of horses as a result of the measures.
	The regulations will also discourage the trade in stolen horses and, as noble Lords have said, they give us the opportunity to move from the registration system that will arise from them into a national equine database. That would have great benefits for animal disease control, health and welfare, and is another reason why, by and large, the industry supports the proposals.
	The noble Viscount, Lord Astor, and others referred to the export trade. The claims that the passport system will lead to an export trade in live horses for slaughter is, frankly, completely spurious. As noble Lords have acknowledged in previous debates, there has never been a formal ban on the export of horses. We have rules prohibiting the export of low-value ponies, and those regulations will remain until and unless robust welfare-based rules providing similar or improved protection are in place. That is one canard that ought to be refuted.
	My noble friend Lady Mallalieu and others made quite a lot of the costs, but only one passport is required for the horse during its lifetime, with perhaps further registration of it on transfer of owner. That cost is pretty low compared with what most horse owners claim is the expense of keeping horses and ponies. I am told that the price of a passport equates to approximately half a set of horseshoes. There are also veterinary expenses, but those can be incurred at any time during the horse's life, whereas replacement of shoes would take place every eight to 10 weeks or so. The prices that the passport-issuing organisations have announced have brought down the originally anticipated cost and made special provision for charitable organisations. The system is therefore being operated with a light touch, relatively low costs, and special provision for special cases.
	My noble friend Lady Mallalieu, the noble Earl, Lord Onslow, and others referred to the total numbers of horses about which we are talking. It is true that we do not know exactly how many horses there are in the country. We can make a stab at it, and so can the Swedes; so, no doubt, can your Lordships. It is certainly more than 600,000. The number of applications as of mid-June was about 179,000, with another 40,000 in the pipeline, so more than 200,000 applications had been made. A further rush in recent weeks will increase that very substantially, but it is true that we are not near the 600,000 figure yet, and it will take time for the system to bed in. There will be special arrangements in some parts of the country, but there is a significant engagement in the process of application for and acquisition of passports already, in which not only many large commercial operations in the horse sector but many individuals have already engaged.
	In the circumstances, the regulations are an improvement on those previously on the statute book, and implement fully the EU provisions. They use a provision in the EU directive and are therefore not gold-plating. They address some concerns expressed during the consultation and provide some very definite benefits for the horse sector as a whole, the welfare of animals, and the potential benefit of horse owners themselves.
	I do not pretend that the start of the process was particularly welcome to the Government in the form in which it came. However, it is one where we have attempted to make the best of propositions from Europe—both on this directive and those relating to veterinary medicines. The proposals before the House address both of those problems and deliver for horse owners and the horse population a significant basis for improving their welfare and health and one which avoids aspects of the horse trade that are illegal and detrimental.
	I hope that the noble Viscount, Lord Astor, will not pursue his prayer against the regulations and recognise that whether we wish to be here or not, these regulations represent the best position that we can be in, given all of the circumstances and the position taken by the vast majority of representative organisations within this sector.

The Earl of Onslow: My Lords, before the Minister sits down can he say why horses need to have a medical record before they go to slaughter, while pigs, cows and sheep do not?

Lord Whitty: My Lords, I think that the noble Earl is familiar with all of the regulations that apply to the breeding, sale, keeping and disease bio-security checking of all species of livestock that enter the food chain. Most of those regulations apply across Europe. We do not have parallel arrangements regarding horse meat. Some nation states do, but Europe does not. From the safety point of view, that is the origin of the regulations. Whatever the merits of the wider issues, one cannot refute that if one eats horse meat it should be subject to arrangements parallel to those that we have for other species.

The Duke of Montrose: My Lords, before the Minister sits down, can he say whether the data that is required for current passports will be the basis for these proposals? Have the Government given any thought to whether that information will be used for the horse database?

Lord Whitty: My Lords, it will certainly be the core information required for that database and there may be other requirements down the line—technologies such as microchips could be introduced at a later stage—but that core information will certainly go a long way to providing a comprehensive basis for a national equine database.

Viscount Astor: My Lords, I am grateful to all noble Lords who have spoken. The noble Viscount, Lord Falkland, and the noble Baroness, Lady Mallalieu, gave me general support. My noble friends Lord Jopling and Lord Onslow talked about pedigree. The passports will not help pedigree in any way. I have here a passport application form which is quite simple: for "name" I would put my horse "Ronald"; "species" would be "horse"; "sex" would be "gelding"; for "year of birth" I would have to put "22 to 24 years ago, I am not sure"; for "colour" I would put "bay"; and for "height", "16 hands"; for "any other noticeable features"—"no". I have to say that the horse might obtain a passport but that description could probably fit many thousands of horses around England. That is the failure of the system and that is why it will not make any difference to breeding—although a gelding would find it more difficult than others to breed.
	My noble friend Lord Ullswater gave a considered and carefully crafted speech as a member of the committee that examined the regulations. He was clear that the committee's view was that the regulations implement EU legislation inappropriately. It is not necessary and he gave a detailed explanation of that—which the Minister did not address. My noble friend Lord Selsdon spoke about proof of identity and his unfortunate time eating horse meat in France. I shall make sure that when I go to a French restaurant with my noble friend I, not he, shall choose what we eat. My noble friend the Duke of Montrose spoke about breeding and production which, again, will not be helped by passports.
	The Minister said that there were many other desirable features in the scheme, but he was at a loss to explain what they were. One of his main points was that the industry was in favour of the scheme. I questioned Defra and I received a clear reply. Out of the 47 responses only four agreed with the passports rule; 25 were in favour of passports only for horses entering the food chain; six had no views; three asked for clarification; four made other suggestions; and two questioned the efficiency of the scheme. That is not an overwhelming endorsement by the industry; it is something different.
	I believe that the noble Lord finally lost his argument by giving us a list of the countries that are to issue passports for all. They are the minority in Europe, not the majority. There are many European countries.

Lord Whitty: My Lords, I should clarify this point before it goes on the record. The organisations which represent the majority of the industry were in favour of something like a full passport system, although some had some qualifications. Since then, some of the other organisations have become convinced of the need for such a system. I did not want that to go uncorrected.

Viscount Astor: My Lords, I am only telling the noble Lord what his department said. It is absolutely clear that only 25 respondents were in favour of passports only for horses entering the food chain.
	The Minister mentioned a number of countries which are issuing passports for all, but they are in the minority in Europe. He then said—I think that it rather gave the game away—that other EU countries have taken up the other alternative. As the Minister admits, the other alternative is passports only for horses that enter the food chain.
	The Minister then produced another argument put forward by vets concerning prescribed medicines. There is a plan that certain medicines should be given only to horses with passports. I accept that that is a valid point but the response to it is that if a horse or pony needed the medicine, the owner could instantly apply for a passport. Indeed, under the Government's current rules if someone does not have a passport for his horse, the vet can treat the horse and give the owner or keeper a certificate which is then put into the passport at a later date. Therefore, horses would not be prevented from being treated with the medicines that they have now.
	The Minister also talked about the minimum value legislation. That is under threat from Europe and is likely to be declared illegal by the EU. It is stopping many more horses going abroad.
	The Minister said that if these regulations fall, we shall come back to the ones that we first introduced, which did not work. They did not work then and they will not work now. This is the opportunity for the Government to come forward with some workable regulations at a minimum cost to the industry.
	I am afraid that I remain unconvinced by the Minister's argument. He has not satisfied me and I do not believe that he has satisfied the House. I wish to test the opinion of your Lordships.

On Question, Whether the said Motion shall be agreed to?
	Their Lordships divided: Contents, 13; Not-Contents, 40.

Resolved in the negative, and Motion disagreed to accordingly.
	House adjourned at thirteen minutes before ten o'clock.